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Annuity Due Formula:
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The annuity due formula calculates the present value of a series of equal payments made at the beginning of each period. This differs from an ordinary annuity where payments are made at the end of each period.
The calculator uses the annuity due formula:
Where:
Explanation: The formula accounts for payments made at the beginning of each period, which means the first payment is made immediately and subsequent payments are discounted accordingly.
Details: Calculating the present value of an annuity due is essential for financial planning, loan amortization, lease agreements, and retirement planning where payments are made at the beginning of each period.
Tips: Enter the periodic payment amount in dollars, the interest rate per period (as a decimal), and the number of payment periods. All values must be positive numbers.
Q1: What's the difference between annuity due and ordinary annuity?
A: In an annuity due, payments are made at the beginning of each period, while in an ordinary annuity, payments are made at the end of each period.
Q2: When is annuity due used in real life?
A: Annuity due is commonly used for lease payments, insurance premiums, and retirement account withdrawals where payments are made at the beginning of the period.
Q3: How does the interest rate affect the present value?
A: Higher interest rates result in lower present values, as future payments are discounted more heavily.
Q4: What happens if the interest rate is zero?
A: When the interest rate is zero, the present value simply equals the sum of all payments (PMT × n).
Q5: Can this calculator handle different compounding periods?
A: The calculator uses the interest rate per payment period. For different compounding frequencies, you must adjust the rate accordingly before input.