FinanceTime Value of MoneyA-Level
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Future Value of an Ordinary Annuity Calculator

Calculates the future value of a series of equal payments made at the end of each period, earning compound interest.

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Future Value of Annuity

Formula first

Overview

The Future Value of an Ordinary Annuity (FV_A) formula determines the total accumulated amount of a series of identical payments made at regular intervals, assuming these payments earn compound interest. An ordinary annuity means payments occur at the end of each period. This concept is fundamental in personal finance and investment planning, allowing individuals and businesses to project the growth of savings, retirement funds, or other periodic investments over time.

Symbols

Variables

P = Payment per period, r = Interest rate per period, n = Number of periods, FV_A = Future Value of Annuity

Payment per period
£
Interest rate per period
decimal
Number of periods
periods
Future Value of Annuity
£

Apply it well

When To Use

When to use: Apply this formula when you need to determine the total value of a series of regular, equal contributions (like monthly savings or retirement plan contributions) at a future point in time. It's essential for financial planning, projecting investment growth, and understanding the power of compound interest on periodic payments.

Why it matters: Understanding the future value of an annuity is vital for effective financial planning, enabling individuals to set realistic savings goals for retirement, education, or large purchases. For businesses, it helps in evaluating investment strategies, pension obligations, and long-term financial commitments, ensuring sound capital allocation and wealth accumulation.

Avoid these traps

Common Mistakes

  • Using an annual interest rate 'r' with monthly periods 'n' without converting 'r' to a monthly rate.
  • Confusing ordinary annuity with annuity due (payments at the beginning of the period).
  • Incorrectly calculating the exponent (1+r)^n.

One free problem

Practice Problem

You plan to deposit £100 at the end of each year into an account that pays 5% annual interest, compounded annually. What will be the future value of this ordinary annuity after 10 years?

Payment per period100 £
Interest rate per period0.05 decimal
Number of periods10 periods

Solve for:

Hint: Use the formula for the Future Value of an Ordinary Annuity directly.

The full worked solution stays in the interactive walkthrough.

References

Sources

  1. Fundamentals of Financial Management by Brigham and Houston
  2. Principles of Corporate Finance by Brealey, Myers, and Allen
  3. Wikipedia: Annuity (finance)
  4. Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (14th ed.). McGraw-Hill Education.
  5. Brigham, E. F., & Houston, J. F. (2020). Fundamentals of Financial Management (16th ed.). Cengage Learning.
  6. Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education.
  7. Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management (15th ed.). Cengage Learning. Chapter 4: Time Value of Money.
  8. Brealey, Myers, Allen - Principles of Corporate Finance (Any edition)