Examples of ordinary annuities include interest payments on bonds, which are typically paid semi-annually, and quarterly dividends from a stock that has maintained a stable payout level for years. The present value of an ordinary pension depends largely on the prevailing interest rate. Ordinary pensionIn the case of an ordinary pension, payments are made at the end of a covered period. Ordinary pension payments are usually made monthly, quarterly, semi-annually or annually. A mortgage, for example, is a common type of ordinary annuity. When a homeowner makes a mortgage payment, it usually covers the one-month period until the payment date. Two other common examples of common annuities are interest payments on bonds and dividends in shares. If a bond issuer makes interest payments, which usually occurs twice a year, the interest is paid and received at the end of the relevant period. When a company pays dividends, which typically happens quarterly, it pays at the end of the period when it retains enough excess profits to share its proceeds with its shareholders. If you are liable for the payment of a pension, you will receive an ordinary pension because you can keep your money longer.

However, if you receive pension payments, you will receive a pension due because you will receive your payment earlier. A decent annuity is a series of equal payments made at the end of consecutive periods over a specified period of time. While payments of an ordinary pension can be made as often as every week, in practice they are usually made monthly, quarterly, semi-annually or annually. The opposite of a regular pension is a pension due, where payments are made at the beginning of each period. These two paylines are not the same as the financial product known as annuity, although they are related to each other. An annuity is a series of payments made or received over a predetermined period of time. The timing of these payments varies depending on the type of pension in question. You can learn more about annuities from your broker, but today we`re going to look at regular annuities and compare them to maturing annuities. This article is part of the Motley Fool`s Knowledge Center, created based on the wisdom accumulated by a fantastic community of investors. We would like to hear your questions, thoughts and opinions about the Knowledge Centre in general or on this page in particular. Your contribution will help us help the world invest better! Send us an email to knowledgecenter@fool.com. Thank you – and make a mistake! Remember that with a regular annuity, the investor receives the payment at the end of the period.

This includes a pension due, in which the investor receives the payment at the beginning of the period. A common example is rent, where the tenant usually pays the landlord in advance for the coming month. This difference in the timing of payment affects the value of the pension. The formula for a maturing annuity is as follows: For example, if a regular annuity pays $50,000 per year for five years and the interest rate is 7%, the present value would be as follows: Due to the time value of the money, the increase in interest rates reduces the present value of a regular annuity, while falling interest rates increase its present value. This is because the value of the annuity is based on the return your money could earn elsewhere. If you can get a higher interest rate elsewhere, the value of the annuity in question will decrease. A table of the present value of an annuity due contains the projected interest rate at the top of the table and the number of periods in the form of a column on the far left. The intersection cell between the corresponding interest rate and the number of periods represents the multiplier of the current value. If proceeds are determined between a due annuity payment and the present value multiplier, the present value of the cash flows results. Pension dueIn the case of a pension due, payment is made immediately or at the beginning of a covered period and not at the end.

A rental or lease agreement, for example, is a common example of a pension due. When a rental or lease payment is made, it usually covers the period of one month following the date of payment. Insurance premiums are another example of a pension due, as payments are made at the beginning of a period for coverage that lasts until the end of that period. If everything else is the same, a pension due is always worth more than an ordinary pension because the money was received earlier. The timing of the down payment is essential depending on the opportunity cost. For a single collection payment, the collector can invest an annuity due received at the beginning of the month to earn interest or capital gains. For this reason, a pension due is more advantageous for the beneficiary, as he has the opportunity to use the funds more quickly. Alternatively, people who pay a pension due lose the ability to use the funds for an entire period of time. Those who pay pensions therefore tend to prefer ordinary pensions.

An annuity due may arise due to a recurring obligation. Many monthly bills, such as rent, mortgages, car payments, and cell phone payments, are due because the payee must pay at the beginning of the billing period. Insurance costs are usually pensions due because the insurer requires payment at the beginning of each coverage period. Annuity situations also typically occur in the context of saving for retirement or setting aside money for specific purposes. .