An annuity due is a type of financial contract that involves a series of equal payments made at the beginning of each period, instead of at the end of each period as in a regular annuity. This means that the first payment is due immediately at the beginning of the first period, rather than at the end of the first period.
An annuity due is often used in situations where payments need to be made at the beginning of each period, such as rent payments or loan repayments. By making payments at the beginning of each period, the recipient can use the funds immediately and may be able to earn additional interest or investment income by doing so.
The future value of an annuity due can be calculated using the following formula:
FV = Pmt x ((1 + r)^n – 1) / r) x (1 + r)
where:
FV = Future value of the annuity Pmt = Payment amount r = Interest rate per period n = Number of periods
The present value of an annuity due can be calculated using a similar formula:
PV = Pmt x ((1 – (1 + r)^-n) / r) x (1 + r)
where:
PV = Present value of the annuity
Other financial metrics such as the periodic payment, interest rate per period, number of periods, present value and future value can also be calculated for an annuity due.