EECO101

ENGINEERING ECONOMY
Fundamental
Concepts of
Annuity
Objectives:
• Identify the different types of
annuity
• Classify simple annuities
Annuity is a series/sequence of
payments (usually equal) made at equal
intervals of time.

• Installment payments
• Monthly payments/rentals
• Insurance premiums
• Monthly retirement benefits
• Weekly / monthly wages
Types of Annuity
1. Annuity Certain
• Annuity payable for a definite duration
• Payments begin and end at fixed times

2. Contingent Annuity or Annuity Uncertain

• Annuity payable for an indefinite duration
(beginning or termination is dependent on some
certain event)
• Payments are not certain to be made
Kinds of Annuity Certain
Simple Annuity
»The interest conversion period
(𝒎 ) is equal to the payment
interval (𝒑𝒊)
» 𝒎 = 𝒑𝒊
General Annuity
»The interest conversion period
(𝒎) is not equal to the payment
interval (𝒑𝒊)
» 𝒎 ≠ 𝒑𝒊
Classification of Simple Annuity
Ordinary Annuity
Annuity in which periodic payment (𝑨) is made at the
end of each payment interval.

Annuity Due (𝑨 − 𝒅𝒖𝒆)

Annuity in which periodic payment (𝑨) is made at the
beginning of each payment interval

Deferred Annuity (𝑨 − 𝒅𝒆𝒇.)

Annuity in which periodic payment (𝑨) is neither at
the beginning nor end of each payment interval but
some later date.