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Future Value of an Annuity (FVA) Calculator

Calculates the total future value of a series of equal, periodic payments.

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Future Value of Annuity

Formula first

Overview

The Future Value of an Annuity (FVA) formula determines the accumulated value of a series of identical payments made over a specified period, assuming a constant interest rate. Each payment earns interest from the time it is made until the end of the annuity period, and the formula sums these compounded values. This concept is vital for financial planning, such as saving for retirement, calculating the future worth of regular investments, or understanding the growth of a savings plan.

Symbols

Variables

PMT = Payment per Period, r = Interest Rate per Period, n = Number of Periods, FVA = Future Value of Annuity

PMT
Payment per Period
USD
Interest Rate per Period
%
Number of Periods
periods
FVA
Future Value of Annuity
USD

Apply it well

When To Use

When to use: Apply this formula when you are making regular, equal payments (or deposits) into an account that earns interest, and you want to know the total accumulated amount at a future date. It's commonly used for retirement planning, calculating the future value of savings plans, or evaluating investment strategies involving periodic contributions.

Why it matters: Understanding FVA is crucial for long-term financial planning and wealth accumulation. It helps individuals and businesses project the growth of their savings and investments, enabling them to set realistic financial goals, assess the adequacy of their contributions, and make informed decisions about retirement, education, or other future expenses.

Avoid these traps

Common Mistakes

  • Not adjusting the interest rate (r) and number of periods (n) to match the payment frequency (e.g., using an annual rate for monthly payments).
  • Confusing future value of an annuity with future value of a lump sum or present value of an annuity.

One free problem

Practice Problem

You decide to deposit $100 at the end of each year into a savings account that earns an annual interest rate of 5%. How much money will you have in the account after 10 years?

Payment per Period100 USD
Interest Rate per Period0.05 %
Number of Periods10 periods

Solve for: FVA

Hint: Use the FVA formula directly, ensuring 'r' is in decimal form.

The full worked solution stays in the interactive walkthrough.

References

Sources

  1. Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of Corporate Finance (13th ed.). McGraw-Hill Education.
  2. Brigham, E. F., & Houston, J. F. (2020). Fundamentals of Financial Management (16th ed.). Cengage Learning.
  3. Wikipedia: Annuity (finance)
  4. Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management (15th ed.). Cengage Learning.
  5. Wikipedia: Time value of money
  6. Brealey, Myers, and Allen Principles of Corporate Finance, 13th Edition
  7. Wikipedia article 'Annuity (finance)'
  8. Ross, Westerfield, & Jordan. Corporate Finance. McGraw-Hill Education.