Future value of annuity is the value of an asset at a specific date. The Future Value of an Annuity (FVA) is the value that a stream of expected or promised future payments will grow to after a given number of periods at a specific compounded interest.
The Future Value of Annuity measures the nominal future sum of money that a given sum of money is "worth" at a specified time in the future assuming a certain interest rate, or more generally, rate of return; it is the present value multiplied by the accumulation function. The value does not include corrections for inflation or other factors that affect the true value of money in the future. This is used in time value of money calculations.
Example:
Calculate the Future Value of Annuity for the following details:
Annuity Amount: 100000
Interest Rate (r): 2 %
Number of periods (n): 2 years
Solution:
Apply Formula:
Future value = annuity value × [(1 + r)^{n}- 1] / r
Future value = 100000*[(1+2%)^{2}-1/2
Future value = 100000* [(1+2%)^{2}-1]/2
Future value = 100000*1.0404-1/2
Future value =100000*0.0404/2
Future value = 100000*0.0202
Future value = 202000