Future Worth of Annuity Calculator

Future Worth of an Annuity Formula:

\[ F = A \times \frac{(1+i)^n - 1}{i} \]

Annuity (A):

Discrete Compound Interest Rate (i):

decimal

Number of Interest Periods (n):

periods

Future Worth of Annuity (F):

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1. What is Future Worth of an Annuity?

The Future Worth of an Annuity is a financial metric that represents the total value of a series of equal cash flows or payments received or paid at regular intervals over time, considering the time value of money.

2. How Does the Calculator Work?

The calculator uses the Future Worth of Annuity formula:

\[ F = A \times \frac{(1+i)^n - 1}{i} \]

Where:

\( F \) — Future Worth of Annuity
\( A \) — Annuity amount per period
\( i \) — Discrete compound interest rate per period
\( n \) — Number of interest periods

Explanation: This formula calculates the future value of a series of equal payments made at regular intervals, considering compound interest over time.

3. Importance of Future Worth Calculation

Details: Calculating the future worth of an annuity is crucial for retirement planning, investment analysis, loan amortization, and financial decision-making. It helps individuals and businesses understand the long-term value of regular financial commitments.

4. Using the Calculator

Tips: Enter the annuity amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and the number of interest periods. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between ordinary annuity and annuity due?
A: In an ordinary annuity, payments are made at the end of each period, while in an annuity due, payments are made at the beginning of each period. This calculator assumes ordinary annuity.

Q2: How does compounding frequency affect the calculation?
A: The interest rate and number of periods must match the compounding frequency. For annual compounding, use annual rates and periods; for monthly, use monthly rates and periods.

Q3: Can this calculator handle variable interest rates?
A: No, this calculator assumes a constant interest rate throughout all periods. For variable rates, more complex calculations are required.

Q4: What is the relationship between present worth and future worth of an annuity?
A: Present worth is the current value of future annuity payments, while future worth is the value of those payments at the end of the annuity period. They are related through the time value of money concept.

Q5: How accurate is this calculation for real-world applications?
A: This calculation provides a theoretical foundation. Real-world applications may require adjustments for taxes, fees, and other financial factors not considered in the basic formula.