When payments are made at the beginning of each period, such as at the beginning of the year, the series of payments is called:

The correct option is this Annuity due.

In Finance MCQs, understanding the concept of an annuity due is essential because it directly relates to the time value of money, one of the most fundamental principles in finance. The time value of money states that money received today is worth more than the same amount received in the future because it can be invested to earn returns. An annuity due is a financial arrangement where a series of equal payments are made at the beginning of each period. This timing difference significantly impacts both the present value and future value calculations, making it a frequently tested topic in finance examinations.

To understand annuity due clearly, it is important to first define an annuity. In finance, an annuity refers to a sequence of equal payments made at regular intervals over a specified period. These intervals may be yearly, semi-annually, quarterly, or monthly. In Finance MCQs, annuities are generally categorized into two main types: ordinary annuity and annuity due. The distinction between them lies solely in the timing of payments.

In an ordinary annuity, payments are made at the end of each period. For example, if loan installments or investment contributions are paid at the end of every month, they represent an ordinary annuity. In contrast, an annuity due involves payments made at the beginning of each period. A common real-world example is house rent that is paid at the start of the month. Similarly, lease payments, insurance premiums, and some subscription services often require payment at the beginning of the period, qualifying them as annuity due arrangements.

The financial importance of an annuity due lies in the additional interest earned. Since payments are made at the beginning of each period, each installment has one extra period to earn interest compared to payments made at the end of the period. As a result, the future value of an annuity due is always higher than that of an ordinary annuity when the payment amount and interest rate are the same. Similarly, the present value of an annuity due is also greater because each payment is discounted for one less period. This subtle yet important difference is commonly tested in Finance MCQs to evaluate conceptual clarity.

The incorrect options further clarify the concept. A fixed payment series is a general description and not a technical classification used in time value of money calculations. An ordinary annuity, as explained, involves payments at the end of each period, which does not satisfy the condition described. A deferred annuity refers to payments that begin after a delay or grace period, which differs from the immediate beginning-of-period payments seen in an annuity due.

Understanding annuity due is essential for solving practical finance problems, including retirement planning, lease agreements, loan structures, and investment growth calculations. In competitive exams such as banking, accounting, and business finance tests, numerical questions often require calculating the present value or future value of an annuity due using specific formulas or financial calculators.

In conclusion, when equal payments are made at the beginning of each period, the arrangement is called an annuity due. This concept is crucial in time value of money analysis and plays a significant role in financial decision-making. Therefore, in Finance MCQs, the correct answer is Annuity due.