1. What Are Annuities?

An annuity is a series of equal payments made at regular intervals. There are two main types: ordinary annuities (payments at end of period) and annuities due (payments at beginning of period).

2. How the Calculator Works

The calculator uses these formulas:

Where:

• \( PMT \) — Payment amount per period
• \( r \) — Interest rate per period (in decimal)
• \( n \) — Number of periods
• \( FV_{ordinary} \) — Future value of ordinary annuity
• \( FV_{due} \) — Future value of annuity due

3. Ordinary vs Due Annuities

Ordinary Annuity: Payments are made at the end of each period (most common for loans, retirement payouts).
Annuity Due: Payments are made at the beginning of each period (common for rents, leases, insurance premiums).

4. Using the Calculator

Tips: Enter payment amount in dollars, interest rate as decimal (e.g., 5% = 0.05), number of periods, and select annuity type.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference in value between ordinary and due annuities?
A: Annuity due is worth exactly (1 + r) times the ordinary annuity because payments are invested one period earlier.

Q2: Can I calculate present value with this?
A: This calculates future value. For present value, you'd need different formulas.

Q3: What if my interest rate is zero?
A: The formula simplifies to PMT × n for ordinary annuity, PMT × n × (1 + r) for annuity due.

Q4: Are the periods always years?
A: No, periods can be any consistent time unit as long as rate matches (monthly periods need monthly rate).

Q5: How does compounding frequency affect this?
A: You must use rate and periods that match the compounding frequency (e.g., monthly compounding needs monthly rate).