Annuity formula...

Meaning of Annuity Formula: IAnnuities are a sequence of fixed payments that either you have to pay or you get it at a certain frequency for a certain period of time. It may vary from once a year (yearly), twice a year (semi-annually), four times a year (quarterly) or once a month (monthly). An Annuity Formula is required to calculate the various types of annuities.

Present Annuity Formula: As is evident from the name, present annuity formula is used to calculate the value of the present annuity. When we want to determine present value of a series of payments, we need to implement the formula that will calculate the present value. The present annuity refers to the value arrived at by discounting a flow of impending prospective payments to a single equivalent amount. To obtain the total discounted value, we will take the present value of each future payment and add the cash flows together. The present annuity formula that is used for the purpose is given below: PV = C * [(1 - (1 / (1 + i)n )) / i] PV = present annuity value C = cash flow per period i = interest rate n = number of payments This formula is specifically meant for an ordinary annuity and, as you are already aware, calculates the value of present annuity.

Future Annuity Formula:The future annuity formula, as you may already know, is used to estimate the value of the future annuity. The future annuity refers to the value arrived at as a result of the growth of a flow of impending prospective payments over an ascertained number of time periods that is derived with the help of a particular rate of compounded interest. The future annuity formula helps you to calculate the total value of investment. Like, if you have taken a loan this will help you to estimate the cost of the loan. This formula is applicable only when you know the investment per period and the time period. In order to calculate the future value of the annuity, we have to calculate the future value of each cash flow. Then the cash flows are all summed up together. The future annuity formula that is used for the purpose is given below:


FV = C * [((1 + i)n – 1) / i] FV = future annuity value C = cash flow per period i = interest rate n = number of payments


This formula is specifically meant for an ordinary annuity and, as you know, calculates the value of future annuity.

Due Annuity Formula:Due Annuity, calculated by the due annuity formula, refers to the annuity payment that involves payment that must be made instantly without any delay. The payment cannot be postponed till the middle or the end of the ascertained period. This means that the payments are required at the beginning or at the start of each period. We can cite the example of Rent for the period. We generally pay rent at the beginning of the month and then may be first week of every month. The due annuity formula could be used to calculate the present as well as the future annuities that are not ordinary in nature.