What is the future value of ordinary annuity?
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Likewise, what is the formula for future value of an ordinary annuity?
The basic equation for the future value of an annuity is for an ordinary annuity paid once each year. The formula is F = P * ([1 + I]^N - 1 )/I. P is the payment amount. I is equal to the interest (discount) rate.
Secondly, how do you find the value of an ordinary annuity? For example, if an ordinary annuity pays $50,000 per year for five years and the interest rate is 7%, the present value would be: Present Value = $50,000 x ((1 - (1 + 0.07) ^ -5) / 0.07) = $205,010.
- PMT = the period cash payment.
- r = the interest rate per period.
- n = the total number of periods.
Correspondingly, what is the future value of an annuity?
While it is unlikely to be your sole source of cash during retirement, it can effectively supplement your IRA or 401(k). The future value of an annuity calculation shows what the payments from an annuity will be worth at a specified date in the future, based on a consistent rate of return.
Why the future value of an annuity due is greater than the future value of an ordinary annuity?
Since payments are made sooner with an annuity due than with an ordinary annuity, an annuity due typically has a higher present value than an ordinary annuity. When interest rates go up, the value of an ordinary annuity goes down. On the other hand, when interest rates fall, the value of an ordinary annuity goes up.