Annuity Due

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Definition of 'Annuity Due'

An annuity due is a series of equal payments made at the beginning of each period. This is in contrast to an ordinary annuity, in which payments are made at the end of each period. The present value of an annuity due is greater than the present value of an ordinary annuity of the same amount and term, because the annuity due receives the payments sooner.

The formula for the present value of an annuity due is:

PV = A * [1 - (1 + r)-n] / r


* PV is the present value of the annuity
* A is the amount of each payment
* r is the interest rate
* n is the number of payments

For example, if you want to know the present value of an annuity due of $100 per month for 10 years at an interest rate of 5%, you would use the following formula:

PV = $100 * [1 - (1 + 0.05)-10] / 0.05 = $610.51

This means that you would need to invest $610.51 today in order to receive $100 per month for the next 10 years.

Annuities due are often used to fund retirement plans. This is because the payments are made at the beginning of each period, which means that the money is available to invest and grow for a longer period of time. This can help to increase the overall value of the annuity.

Annuities due can also be used to save for a specific goal, such as a down payment on a house. In this case, the payments would be made over a shorter period of time, and the money would be used to purchase the asset at the end of the term.

Annuities due are a flexible financial tool that can be used for a variety of purposes. By understanding the different features of annuities due, you can make informed decisions about how to use them to meet your financial goals.

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