Definition of Ordinary Annuity
In accounting, an ordinary annuity refers to a series of identical cash amounts with each amount occurring at the end of equal time intervals. Another term for ordinary annuity is annuity in arrears .
Example of Ordinary Annuity
The series of semiannual interest payments that are part of a bond payable is an example of an ordinary annuity.
A 10-year bond with a face value of $10 million and a stated interest rate of 6% will include an ordinary annuity consisting of the required interest payments of $300,000 at the end of each of the 20 six-month time intervals.
Another example of an ordinary annuity is a mortgage loan having a fixed interest rate and a series of equal monthly payments. For instance, a 15-year mortgage loan will result in an ordinary annuity of 180 equal monthly payments with the first payment due approximately 30 days after the loan is made.
