## Finance: How to calculate Annuity, Present Value, Future Value

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Finance: How to calculate Annuity, Present Value, Future Value

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3 months 2023-03-15T10:00:11+00:00 1 Answer 0 views Teacher 0

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An annuity is a series of equal payments made or received at equal intervals over a period of time. The most common types of annuities are 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.

To calculate the annuity, present value, or future value, you will need to know the following variables:

PMT: The periodic payment amount.
i: The interest rate per period.
n: The total number of periods.

Once you have these variables, you can use the following formulas:

Annuity:

Ordinary Annuity:

A = PMT x [(1 – (1 + i)^(-n)) / i]

Annuity Due:

A = PMT x [(1 – (1 + i)^(-n-1)) / i]

Present Value:

Ordinary Annuity:

PV = PMT x [(1 – (1 + i)^(-n)) / i]

Annuity Due:

PV = PMT x [(1 – (1 + i)^(-n-1)) / i] x (1 + i)

Future Value:

Ordinary Annuity:

FV = PMT x [((1 + i)^n – 1) / i]

Annuity Due:

FV = PMT x [((1 + i)^n – 1) / i] x (1 + i)

It is important to note that the above formulas assume that the payments are made at equal intervals and that the interest rate remains constant throughout the period of the annuity. If either of these assumptions is not met, then the calculations will be more complex. Additionally, the formulas can be modified to account for other factors such as taxes, inflation, and fees.