Ordinary Annuity and Annuity Due

What are annuities?
Annuities are a series of fixed payments required from you, or paid to you, at a specified frequency over the course of a fixed period of time. The most common payment frequencies are yearly (once a year), semi-annually (twice a year), quarterly (four times a year) and monthly (once a month). There are two basic types of annuities: ordinary annuities and annuities due:
  • Ordinary annuity
    Payments are made at the end of each period.
  • Annuity due
    Payments are made at the beginning of each period. Regular investments made at the beginning of a compounding period grow into larger sums because they have more time to compound.

Net present value (NPV)

What is net present value?
NPV is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.

NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.


NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective investment is positive, it should be accepted. However, if the NPV is negative, the investment should probably be rejected because cash flows will also be negative.
Internal Rate of Return (IRR), Uneven Cash Flows and Serial Payments

Related Articles
  1. Retirement

    How to Calculate the Value of Annuities

    Here's everything you need to account for when calculating the present and future value of annuities.
  2. Retirement

    Are Annuities Retirement-Only Investments?

    Learn more about why annuities are generally purchased and the way that they can positively and negatively affect an individual preparing for retirement.
  3. Investing

    DIY Annuities: What You Need to Know

    Annuities are attractive because they can give you a stream of income, but they can be tricky to buy.
  4. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  5. Retirement

    Who Benefits From Retirement Annuities

    Annuities guarantee some degree of fixed income in retirement. But is the security worth the fees and less favorable tax treatment? How to decide.
  6. Retirement

    Annuities: How To Find The Right One For You

    Fixed, variable and indexed annuities offer different features. Find out which one fits your needs.
  7. Investing

    What Do You Need to Know About Annuities?

    There are varying views on annuities. Use this basic information to draw your own conclusions.
  8. Financial Advisor

    Annuities: A Good Option in Turbulent Times?

    Annuities can be an enticing option as Americans near retirement, but there are several reasons to be wary of them.
  9. Retirement

    When Annuities Are the Wrong Investment

    Understand how annuities provide several unique benefits, but many drawbacks as well, and identify the situations where they are not the best investment.
  10. Investing

    The Many Benefits of Deferred Annuities

    Having a deferred annuity can ensure income in retirement above and beyond Social Security.
Frequently Asked Questions
  1. Why Do Most of My Mortgage Payments Start Out as Interest?

    Fear not: Over the life of the mortgage, the portions of interest to principal will change.
  2. What is the difference between secured and unsecured debts?

    The differences between secured and unsecured debt, and how banks buffer risks associated with each type of loan through ...
  3. How Many Times has Warren Buffett Been Married?

    Warren Buffett has been married twice in his life, but the circumstances surrounding the marriages were unconventional.
  4. What's the smallest number of shares of stock that I can buy?

    Many people would say the smallest number of shares an investor can purchase is one, but the real answer is not as straightforward. ...
Trading Center