Annuity (finance Theory)
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Annuity (finance Theory)
In investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ..., an annuity is a series of payments made at equal intervals.Kellison, Stephen G. (1970). ''The Theory of Interest''. Homewood, Illinois: Richard D. Irwin, Inc. p. 45 Examples of annuities are regular deposits to a savings account A savings account is a bank account at a retail banking, retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Tradit ..., monthly home mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property ow ...
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Investment
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is to generate a Return (finance), return from the invested asset. The return may consist of a gain (profit) or a loss realized from the sale of a property or an investment, unrealized capital appreciation (or depreciation), or investment income such as dividends, interest, or rental income, or a combination of capital gain and income. The return may also include currency gains or losses due to changes in the foreign currency exchange rates. Investors generally expect higher rate of return, returns from Financial risk, riskier investments. When a low-risk investment is made, the return is also generally low. Similarly, high risk comes with a chance of high losses. Investors, particularly novices, are often advised to Diversification (financ ...
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Annual Effective Discount Rate
The annual effective discount rate expresses the amount of interest paid or earned as a ''percentage'' of the balance at the ''end'' of the annual period. It is related to but slightly smaller than the effective rate of interest, which expresses the amount of interest as a ''percentage'' of the balance at the ''start'' of the period. The discount rate is commonly used for United States Treasury security#Treasury bill, U.S. Treasury bills and similar financial instruments. For example, consider a government bond that sells for $95 ('balance' in the bond at the start of period) and pays $100 ('balance' in the bond at the end of period) in a year's time. The discount rate is : \frac = 5.00\% The effective interest rate is calculated using 95 as the base : \frac = 5.26\% which says that 95\% of $105.26 is $100. For every effective interest rate i, there is a corresponding effective discount rate d that can produce the same future value as i if a given amount of Debt#Principal, p ...
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Time Value Of Money
The time value of money is the widely accepted conjecture that there is greater benefit to receiving a sum of money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ... now rather than an identical sum later. It may be seen as an implication of the later-developed concept of time preference In economics, time preference (or time discounting, delay discounting, temporal discounting, long-term orientation) is the current relative valuation placed on receiving a Production (economics), good or some cash at an earlier date compared with .... The time Time is the continued sequence of existence and event (philosophy), events that occurs in an apparently irreversible process, irreversible succession from the past, through the present, into the future. It is a component quantity of ...
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Perpetuity
A perpetuity is an annuity that has no end, or a stream of cash payments that continues forever. There are few actual perpetuities in existence. For example, the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ... (UK) government issued them in the past; these were known as consols Consols (originally short for consolidated annuities, but subsequently taken to mean consolidated stock) were government bond, government debt issues in the form of perpetual bonds, redeemable at the option of the government. They were issued by t ... and were all finally redeemed in 2015. Real estate and preferred stock Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not ...
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Fixed Rate Mortgage
A fixed-rate mortgage (FRM) is a mortgage loan A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners ... where the interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ... on the note Note, notes, or NOTE may refer to: Music and entertainment * Musical note In music, a note is the representation of a musical sound. Notes can represent the Pitch (music), pitch and Duration (music), duration of a sound in musical notation. A ... remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float". As a result, payment amounts and the du ...
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Amortization Calculator
An amortization calculator is used to determine the periodic payment amount due on a loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ... (typically a mortgage A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners ...), based on the amortization process. The amortization repayment model factors varying amounts of both interest In finance and economics, interest is payment from a debtor, borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is ... and princ ...
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Annuities Under Swiss Law
A Swiss annuity simply refers to a fixed or variable annuity (finance theory), annuity marketed from Switzerland or issued by a Swiss based life insurance company but has no legal definition. Insurance brokers promoting annuity contracts issued by insurance companies domiciled in jurisdictions outside of Switzerland, such as Liechtenstein, also market such contracts as Swiss annuities. The hallmarks of a Swiss annuity generally include the ability to invest in multiple currencies, the custody of assets within Switzerland, and the flexibility of withdrawals. Often touted benefits of a Swiss annuity include the safety of Switzerland plus some degree of asset protection. U.S. Tax Considerations For U.S. taxpayers owning a fixed annuity issued by a non-U.S. insurance company, including a Swiss annuity, the interest credited within the policy is subject to U.S. income tax on an annual basis under the original issue discount rules. Variable annuities issued by non-U.S. insurance compa ...
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Annuities Under European Law
Under European Union law European Union law is a system of rules operating within the member states of the European Union (EU). Since the founding of the European Coal and Steel Community following World War II, the EU has developed the aim to "promote peace, its value ..., an annuity is a financial contract which provides an income stream in return for an initial payment with specific parameters. It is the opposite of a settlement funding. A Swiss annuity is not considered a European annuity for tax reasons. Immediate annuity An immediate annuity is an annuity for which the time between the contract date and the date of the first payment is not longer than the time interval between payments. A common use for an immediate annuity is to provide a pension A pension (, from Latin ''pensiƍ'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the ...
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Annuities Under American Law
In the United States, an annuity is a financial product which offers tax-deferred growth and which usually offers benefits such as an income for life. Typically these are offered as structured (insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to Hedge ( ...) products that each state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, U ... approves and regulates in which case they are designed using a mortality table and mainly guaranteed by a life insurer Life insurance (or life assurance, especially in the Commonwealth of Nations The Commonwealth of Nations, simply referred to ...
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Fixed Rate Mortgage
A fixed-rate mortgage (FRM) is a mortgage loan A mortgage loan or simply mortgage (), in civil law (legal system), civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners ... where the interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ... on the note Note, notes, or NOTE may refer to: Music and entertainment * Musical note In music, a note is the representation of a musical sound. Notes can represent the Pitch (music), pitch and Duration (music), duration of a sound in musical notation. A ... remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float". As a result, payment amounts and the du ...
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Probability
Probability is the branch of mathematics concerning numerical descriptions of how likely an Event (probability theory), event is to occur, or how likely it is that a proposition is true. The probability of an event is a number between 0 and 1, where, roughly speaking, 0 indicates impossibility of the event and 1 indicates certainty."Kendall's Advanced Theory of Statistics, Volume 1: Distribution Theory", Alan Stuart and Keith Ord, 6th Ed, (2009), .William Feller, ''An Introduction to Probability Theory and Its Applications'', (Vol 1), 3rd Ed, (1968), Wiley, . The higher the probability of an event, the more likely it is that the event will occur. A simple example is the tossing of a fair (unbiased) coin. Since the coin is fair, the two outcomes ("heads" and "tails") are both equally probable; the probability of "heads" equals the probability of "tails"; and since no other outcomes are possible, the probability of either "heads" or "tails" is 1/2 (which could also be written ...
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Life Table
In actuarial science and demography, a life table (also called a mortality table or actuarial table) is a table which shows, for each age, what the probability is that a person of that age will die before their next birthday ("probability of death"). In other words, it represents the survival function, survivorship of people from a certain population. They can also be explained as a long-term mathematical way to measure a population's longevity. Tables have been created by demographers including Graunt, Reed and Merrell, Keyfitz, and Greville. There are two types of life tables used in actuarial science. The period life table represents mortality rates during a specific time period of a certain population. A cohort life table, often referred to as a generation life table, is used to represent the overall mortality rates of a certain population's entire lifetime. They must have had to be born during the same specific time interval. A cohort (statistics), cohort life table is more fr ...
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