Future Value of an Ordinary Annuity

Posted by Professor Cram in Annuities

Ordinary Annuities

An annuity is a stream of payments made through time. A stream of equal payments at equal time intervals is a fixed annuity. If those payments are made at the end of each time period (month, quarter, year, etc…) it is an Ordinary Annuity. If the payments are due at the beginning of each period, it is an Annuity Due.

The payment amount, interest rate, and number of payments all contribute to the future value of the annuity. Any annuity calculation has these four variables, and with any three you can find the fourth.

The formula and example below calculates the future value of an ordinary annuity from the interest rate, payment amount, and number of payments (periods).

Future Value of an Ordinary Annuity

Calculate the Future Value of an Ordinary Annuity with a step by step example using your values for the periodic interest rate, number of periods, and periodic payment amount.

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Calculating the Future Value of an Annuity Due

You can convert the valuation of an ordinary annuity to an annuity due by compounding the resulting future value for one more period. (Since the payments for an annuity due are all due at the beginning of the period, instead of the end like with an ordinary annuity, this makes it effectively one period sooner, but not one more payment.) The Future Value of an Annuity Due is:

FV(AD) = FV(OA) • (1 + i)

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Comments

3 Responses to “Future Value of an Ordinary Annuity”

  1. Andy says:

    You’ve mentioned some good points in there. Thanks for sharing the formula on how to calculate the future value of an annuity due. It’s a great help. Thanks, quite helpful post.

  2. Marsha K. says:

    I found your site helpful and easy to understand, thank you for taking the time to share it.- Marsha K.

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