About Annuity Formula
The current and future worth of an amount is calculated using an annuity formula. An annuity is a set amount of money that is paid out annually or on
The current and future worth of an amount is calculated using an annuity formula. An annuity is a set amount of money that is paid out annually or on a regular basis. An annuity is a contract with the insurance company in which you pay a lump sum payment (one large payment) or series of payments in exchange for a regular fixed income that begins either immediately or at a future date. The annuity formula is used to calculate an amount's present and future value.
What is Annuity Formula?
Based on the present value of annuity due, effective interest rate, and multiple periods, the annuity formula helps determine the values for annuity payment and annuity due. As a result, the formula is based on an ordinary annuity, which is computed using the present value, effective interest rate, and various periods. The following are the annuity formulas:
Annuity = r * PVA Ordinary / [1 – (1 + r)-n]
Annuity = r * PVA Due / [{1 – (1 + r)-n} * (1 + r)]
The annuity formula for calculating the present value and future value of an annuity is particularly useful for quickly and easily estimating the value. The following are the Annuity Formulas for future and present value:
The future value of an annuity, FV = P×((1+r)n−1) / r
The present value of an annuity, PV = P×(1−(1+r)-n) / r
Annuity Formula use
The formula is based on two key considerations: the present value of the ordinary annuity and the current value of the due annuity.
Annuity = r * PVA Ordinary / [1 – (1 + r)-n]
Where,
PVA Ordinary = Current value of an ordinary annuity, r = Rate of effective interest
n = Periods of time
Annuity = r * PVA Due / [{1 – (1 + r)-n} * (1 + r)]
Where,
PVA Due = Current value of an annuity due
r = Effective interest rate
n = number of periods
Future Value and Present Value Annuity Formulas is:
The Annuity value in the future, FV = P×((1+r)n−1) / r
The present value in the annuity, PV = P×(1−(1+r)-n) / r
here,
P = Value of payment
r = In decimal form, the annual rate of interest
n = Number of periods
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