How to calculate the future value of an annuity, Financial Management

Assignment Help:

Calculate the Future Value of an Annuity:

Annuity is stated as periodic payment every period for a number of periods. This periodic payment is the same each year only then it could be known as an annuity. Compound value (future value) of this annuity can be computed by using a different formula:

2257_Annuity.png

Here A is the constant periodic cash flow (annuity), i is the rate of return for one period and n is the number of time periods. Term within the brackets is the compound value factor of an annuity.  We may also use the tables given at the end of the text book to calculate compound values of the cash flows and formula would change to:

Future Value = Annuity * (Future Value Annuity Factorn,i)

Extending the same illustration we used above, if we were going to pay 7000 $each year for the next 20 years what is the value at the end of 20 years if interest rate was 5 % compounded annually.

 


Related Discussions:- How to calculate the future value of an annuity

Define gatt and what is its goal, What is GATT, and what is its goal? GAT...

What is GATT, and what is its goal? GATT is also termed as General Agreement on Tariffs and Trade.  It is a treaty which seeks to decrease trade barriers among participant nation

Estimate the companys wacc, Assemble all other inputs/assumptions based on ...

Assemble all other inputs/assumptions based on the past data. Use your best judgment to have the most reasonable estimates. Tasks 1. Prepare an Excel spreadsheet containi

Determine about the shareholders, Determine about the Shareholders Shar...

Determine about the Shareholders Shareholders, being the owners of the company, elect board of directors and vote on major issues that affect functioning and long term plans of

Explain about inventory turnover ratio, Q. Explain about Inventory Turnover...

Q. Explain about Inventory Turnover Ratio ? Inventory Turnover Ratio: - Definite items of inventory are slow moving. It signifies that their consumption is quite slow and capit

Restrictions on investments, Restrictions on Investments: A mutual fund...

Restrictions on Investments: A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment

State the different accounting policies, State the different accounting pol...

State the different accounting policies Different accounting policies which can be adopted will have an influence on the ratios calculated and hence make comparisons more diffi

Operating leverage, Operating Leverage Operating leverage define the de...

Operating Leverage Operating leverage define the degree to which an organization cost of operation is fixed as opposed to variable. Therefore, it is a measure of how much a fir

Commercial mortgage-backed securities (cmbs), These securities are ...

These securities are backed by income-producing real estate, usually in the form of warehouses, shopping centers, apartments, office buildings, senior housi

Types of financial incentive schemes, Types of financial incentive schemes ...

Types of financial incentive schemes Performance associated pay (PRP) systems e.g. piecework or sales commission Bonuses e.g. supplementary payments for targets or ai

Just-in-time inventory management, Q. Just-in-time inventory management? ...

Q. Just-in-time inventory management? It considerably improves the short-term liquidity of the business with a maximum financing requirement of $138533 rather than $155640. The

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd