Future Value of an Annuity

An annuity is the payment or receipt of equal cash amounts per period for a specified amount of time. Some common applications are insurance and retirement plan premiums and payouts; loan payments; and savings plans for future events such as starting a business, going to college, or purchasing expensive items (e.g., real estate or business equipment).

Simple annuities are annuities in which the number of compounding periods per year coincides with the number of annuity payments per year. Complex annuities are those in which the annuity payments and compounding periods do not coincide.

As with compound interest, annuities can be calculated manually, by tables, and by formulas. Manual computation is useful for illustrative purposes; however, it is too tedious because it requires a calculation for each period.