Future Value of an Ordinary Annuity

 An Annuity is a series of equal cash flow over a period of time. The Future Value of an Ordinary Annuity is defined as the total value of the series of equal cashflow at a specific future date taking into account compound interests.

For example,

Period 1 Cashflow of $1000 Future Value at Period 3 is $1102.50
Period 2 Cashflow of $1000 Future Value at Period 3 is $1050.00
Period 3 Cashflow of $1000 Future Value at Period 3 is $1000.00

A spreadsheet of the above can be used to calculate the Future Value by summing up all the future values. Alternatively, as the cashflow is of equal value, the following formula can be used.



Formula of Future Value of an Ordinary Annuity

FVn = A * (((1+r)^(n)-1)/r)

  • FVn is the Future Value after a specific period
  • PV is Present Value
  • r is the interest rate
  • n is the period. For example 5 years.
  • A is the Annuity amount
Next :
Future Value of a series of unequal cash flow

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