Future Value of an Annuity Due Formula

Formula

FV = Pmt x (1 + i) x ( (1 + i)n - 1 ) / i
Variables used in the annuity formula
FV = Future Value
Pmt = Periodic payment
i = Discount rate
n = Number of periods

Use

The future value of an annuity due formula shows the value at the end of period n of a series of regular payments. The payments are made at the start of each period for n periods, and a discount rate i is applied.

The formula compounds the value of each payment forward to its value at the end of period n (future value).

Excel Function

The Excel FV function can be used instead of the future value of an annuity due formula, and has the syntax shown below.

FV = FV(i, n, pmt, PV, type)

*The PV argument is not used when using the Excel future value of an annuity due function.

Example Using the Future Value of an Annuity Due Formula

If a payment of 3,000 is received at the start of each period for 7 periods, and the discount rate is 8%, then the value of the payments at the end of period 7 is given by the future value annuity due formula as follows:

FV = Pmt x (1 + i) x ( (1 + i)n - 1 ) / i
FV = 3,000 x (1 + 8%) x ( (1 + 8%)7 - 1 ) / 8%
FV = 28,909.88

The same answer can be obtained using the Excel FV function as follows:

FV = FV(i, n, Pmt,,1)
FV = FV(8%,7,-3000,,1)
FV = 28,909.88

The future value of an annuity due formula is one of many annuity formulas used in time value of money calculations, discover another at the link below.

Future Value of an Annuity Due Formula November 6th, 2016Team

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