An annuity due refers to a series of payments made at the beginning of each period. This contrasts with an ordinary annuity, where payments are made at the end of each period. A common example involves rent payments, typically made at the start of each month. Because payments are received sooner, an annuity due generally possesses a higher present and future value compared to an otherwise identical ordinary annuity.
Understanding the mechanics of this financial instrument is crucial for accurate financial planning and investment analysis. Its correct application impacts calculations involving loan amortization, lease payments, and various structured settlement scenarios. Historical context reveals the increasing relevance of these financial products in an era emphasizing predictable income streams and retirement planning.