1. What is Annuity Due?

An annuity due is a series of equal payments made at the beginning of consecutive periods. Examples include lease payments, insurance premiums, and some retirement payments.

2. How Does the Calculator Work?

The calculator uses the Annuity Due formula:

Where:

• \( PMT \) — Payment amount per period
• \( r \) — Interest rate per period (in decimal form)
• \( n \) — Number of payment periods

Explanation: The formula accounts for payments made at the beginning of each period, which means each payment has one extra period to earn interest compared to an ordinary annuity.

3. Importance of PV Calculation

Details: Calculating present value of annuity due helps in financial planning, comparing investment options, and determining the current worth of future cash flows when payments are made at the beginning of each period.

4. Using the Calculator

Tips: Enter payment amount in dollars, interest rate as a percentage (e.g., 5 for 5%), and number of periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between annuity due and ordinary annuity?
A: Annuity due payments are made at the beginning of each period, while ordinary annuity payments are made at the end. Annuity due has higher present value.

Q2: When is annuity due used?
A: Commonly used for lease agreements, insurance premiums, and any situation where payments are required at the start of each period.

Q3: How does interest rate affect PV of annuity due?
A: Higher interest rates decrease present value (future money is discounted more heavily), while lower rates increase present value.

Q4: What if the interest rate is 0%?
A: The formula simplifies to PV = PMT × n, since there's no time value of money.

Q5: Can this calculator handle monthly payments?
A: Yes, but ensure all inputs use consistent time periods (monthly rate for monthly payments).