Annuity due

Definition

An annuity due is a series of equal payments made at the beginning of each period. This contrasts with an ordinary annuity, where payments are made at the end of each period.

5 Must Know Facts For Your Next Test

1. In an annuity due, the first payment is made immediately.
2. Annuity due calculations typically yield higher present and future values compared to ordinary annuities due to earlier payment timing.
3. The formula for the future value of an annuity due incorporates multiplying by (1 + interest rate).
4. Applications of annuity dues include lease payments and insurance premiums.
5. To convert an ordinary annuity to an annuity due, multiply the ordinary annuity value by (1 + interest rate).

Review Questions

• What distinguishes an annuity due from an ordinary annuity?
• Why does an annuity due have a higher present value than an ordinary annuity?
• How do you adjust the formula for calculating the future value when dealing with an annuity due?

Related terms

Ordinary Annuity:

A series of equal payments made at the end of each period.

Present Value:

The current worth of a future sum of money or stream of cash flows given a specified rate of return.

Future Value:

The value of a current asset at a future date based on an assumed rate of growth.