Annuity

An annuity is a stream of equal payments (or receipts) of money over regular intervals of time. The most popular annuities are car payments and house payments. In these loans (which are actually mortgages, i.e., secured loans), one makes the same payment on a particular day each month until the principal (the amount borrowed) and the interest expense have been satisfied according to the loan agreement.
Lottery and sweepstakes winners are often paid with an annuity. While the grand prize may be $1 million, it is common for the winner to receive the money over time— for instance, $25,000 a year for 40 years. The sum of the annuity payments over 40 years is $1 million, but the present value of such a payoff, the value of the annuity discounted for the time value of money, is less than $1 million.
Holders of long-term bonds payable receive annuities in the form of coupon interest payments as stipulated on the face of the bonds for the life of the bonds or until they sell the bonds to another investor.
In a very real sense, retirees who receive Social Security benefits are annuity recipients, getting a check for a fixed amount from the Social Security Administration each month. Unless a cost-of-living adjustment is made, the monthly payment remains fixed, creating a stream of income payments to retirees that constitute an annuity.
See also compounding, future value.