Formula and 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).
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.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.