Financial Management: Core Concepts, Third Edition

4.4 Annuity Due and Perpetuity

Not all annuities are ordinary (end-of-period) annuities. Some payments are due at the beginning of the time period. For example, when paying rent on an apartment, the person applies the rent at the first or beginning of the month (a prepayment). Such payments differ from car payments or mortgage payments that the person applies at the end of a month (even though the due date is the first day of the month). The rental payment is an annuity due, whereas the car payment and mortgage payment are ordinary annuities. To make this distinction between the beginning of the month and the end of the month clearer, consider that making a rent payment allows you to use the apartment for the remainder of the month; that is, ...