The receipt or payment of a constant annual amount in perpetuity. Although the word annuity refers to an annual sum, in practice the constant sum may be for periods of less than a year. The present value of an annuity is obtained from the formula:
P = (a × 100)/i,
where P is the present value, a is the annual sum, and i is the interest rate.
Subjects: Financial Institutions and Services — Accounting.