How to Calculate Future Value of Annuity Due

An annuity is a stream of equal-sized payments that are made on a regular basis in a specified period, such monthly lease payments. There are ordinary and due annuities. Payments are made at the end of each period in an ordinary annuity. In contrast, due annuities have payments made at the beginning of each period. Learning how to calculate the future value of an annuity is important in managing your finances. It is fairly simple to calculate the future value of an annuity due based on the future value of the ordinary due.

Difficulty: Moderate

Instructions

1. Gather the following information: payments for the annuity, interest rate on annuity and the period of the annuity. For example, you have to pay an annual lease of $10,000 for the next 10 years at a rate of 5 percent.

2. Calculate the future value of the ordinary annuity with the following formula: Payment x (((1+interest rate)^term -- 1)/interest rate). In the example above, the future value of the ordinary annuity is $62,889: $5,000 x (((1+.05)^10 - 1)/.05).

3. Multiply future value of the ordinary annuity by 1 plus the interest rate to get the future value of the annuity due. In our example, this would be $66,033.94 ($62,889 x 1.05).

References

• TVMCalcs.com

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