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Ordinary Annuity
An ordinary annuity refers to a payment arrangement where equal payments are made at the end of each period.
This is as opposed to annuity due where payments are made at the start of each payment period.
To simplify things, the former is like a post-paid mobile plan, while the latter is a pre-paid one.
Because an ordinary annuity would pay for charges accrued during the payment period, it’s calculations are understandably very different to annuity due.
The most common example of an ordinary annuity is that of mortgages.
Monthly payments are requested from the borrower after the interest for the month has been accrued.
This can be easily observed in adjustable rate mortgage when interest rates have changed. The new payment for the new interest would be charged to the borrower at the end of the month after new interest charges have been calculated.
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