How to Calculate the Future Value of an Ordinary Annuity

Equation to be used in Step 4
Equation to be used in Step 4 (Image:

An annuity is a series of payments made or received at standardized intervals over a predetermined period of time; ordinary annuities are payed at the end of these standardized intervals. Knowing how to calculate the future value of an annuity can be especially helpful when dealing with financial information and decisions such as loans, mortgages and investments.

Determine the cash flow (amount of payment or investment) per period and label this value "C."

Determine the interest rate for the period used in Step 1 and label it "i."

Determine the number of payments to be made or received and label this number "n."

Plug the previously established variables, C, i, and n, into the equation: Future Value=C*((((1+i)^n)-1)/i). This equation is shown in the picture at the top of the article. Explained, the equation means raise (1+i) to the nth power, and subtract 1; next, divide that number by i. Finally, multiply that quantity by the value C. The result is the future value of your ordinary annuity.

Tips & Warnings

  • Double-check your work to avoid errors.
  • Always obtain professional consultation when making monetary decisions.

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