In ordinary annuities, payments are made at the end of each period. With annuities due, they’re made at the beginning of the period. The future value of an annuity is the total value of payments at a specific point in time. The present value is how much money would be required now to produce those future payments.

How to calculate the future value of an annuity?

In order to calculate the future value of an ordinary annuity, we can simply use the FV interest factors of an ordinary annuity multiply with the annuity of cash flow. Below is the FV of an ordinary annuity formula: In the above formula, we need to have the future value of an ordinary table to find the FV interest factors of ordinary annuity.

When is an annuity called an ordinary annuity?

If the payments are due at the end of a period, the annuity is called an ordinary annuity. If the payments are due at the beginning of a period, the annuity is called an annuity due. You might want to calculate the future value of an annuity, to see how much a series of investments will be worth as of a future date.

How does harvest designs use an ordinary annuity?

Thus, Harvest Designs buys a warehouse from Higgins Realty for $1,000,000, and promises to pay for the warehouse with five payments of $200,000, to be paid at intervals of one payment per year; this is an annuity. If the payments are due at the end of a period, the annuity is called an ordinary annuity.

What is the future value of a perpetuity?

Future Value of a Growing Annuity (g = i) ( FV=PMTn(1+i)^{n-1}(1+iT) ) Future Value of a Perpetuity or Growing Perpetuity (t → ∞) For g < i, for a perpetuity, perpetual annuity, or growing perpetuity, the number of periods t goes to infinity therefore n goes to infinity and, logically, the future value goes to infinity.