Annuity means a series of EQUAL cash flows at EQUAL interval of time over a given period. The period may be a quarter or month or year or 10 years. There are two types of annuities-
Ordinary annuity and Annuity due, Ordinary annuities are the most common of all, in this kind of annuity the cash flow occurs at the end of each compounding period, for example salary given to staff. Annuity due is the case where cash flow occurs at the beginning of the compounding period, for example payment of rent which is normally paid in advance.
Perpetuity is same as annuity except for the fact that the stream of flows lasts forever.
The formula for Future Value of an Ordinary Annuity is:
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