Annuity (finance theory)

In economics and financial mathematics is called annuity (Latin annus 'year' ) a regularly flowing annual payment, which is composed of the elements of interest and principal. We distinguish the constant and the variable annuity. During the term of an annuity loan with progressive repayment of the loan changed the ratio of interest portion to reduction of the constant annuity here, which is why you also of " initial eradication " speaks at annuity. In an annuity, the (increasing ) is therefore principal and the (decreasing ) interest payment is calculated so that the regular total load remains the same, that is, is an annuity. In an installment loan, however, the redemption amount for each payment remains unchanged, so that in this case, variable annuity is reduced by the diminishing interest burden.

In the investment account of the principal value of an investment is distributed over the duration of the project with the annuity. This takes into account that a erwirtschafteter within a shorter duration capital value is to be considered higher in comparison because this investment can potentially be repeated (investment chain).