What type of annuity makes payments at the end of each period?

The type of annuity that makes payments at the end of each period is referred to as an ordinary annuity. This contrasts with an annuity due, which makes payments at the beginning of each period. In an ordinary annuity, the payment schedule aligns such that the payments are made after the completion of each interval, which is commonly applied in various financial calculations and agreements such as loans and bonds.

This structure allows for simplicity in cash flow analysis since the time value of money can be effectively applied at the end of each period. For example, if an ordinary annuity promises to pay $1,000 annually for five years, the first payment occurs one year from the agreement date, and subsequent payments follow at the end of each of the following years.

In summary, the ordinary annuity's characteristics of ending payment timing distinguish it thoroughly in terms of financial planning and analysis.