An annuity due is a sequence of equal payments made at the beginning of each period over a specified duration. This financial product differs from an ordinary annuity, where payments occur at the end of each period. Common examples of annuities due include lease payments and insurance premiums.
In finance, annuities due are relevant for both individuals and businesses. For individuals, they can serve as a reliable income stream during retirement or a budgeting tool for regular expenses. Companies may use annuities due to manage cash flows or create structured payment plans for clients.
The present value and future value calculations for annuities due are slightly different than those for ordinary annuities. Specifically, because payments occur at the start of each period, the value of each payment is discounted for one less period, leading to a higher present value. Understanding the mechanics of annuities due is crucial for proper financial planning and investment decisions.
