Variables
Description
What is this formula?
The Future Value of an Annuity Due calculates the accumulated value of a series of equal payments made at the beginning of each period.
Because each payment is invested one period earlier than in an ordinary annuity, the accumulated future value is higher.
When to use it
Use this formula when deposits or payments are made at the beginning of each period and you want to determine their future accumulated value.
Example
Suppose:
PMT = $1,000
i = 0.01 per month
n = 12 months
Formula:
FV=PMT(((1+i)^n−1)/i)(1+i)
Substitution:
FV=1000(((1.01)^12−1)/0.01)(1.01)
FV=12,809.33
Result:
Future Value = $12,809.33
Applications
Retirement savings
Lease payments
Investment plans
Education funds
Insurance premiums
Financial planning
Note
This formula assumes equal payments made at the beginning of each period and a constant interest rate. Real-world investments may involve changing rates, taxes, fees, or irregular contributions that affect the final accumulated value.