Future Value of Annuity Due Formula

The future value of an annuity due is the value of consolidated payments at a date in the future, considering a fixed return or discount rate. Annuity’s future value increases with the increase in the discount rate.

Read more
  • Invest 20 Lacs Get ₹ 1.6 Lacs pension for Life

  • Guaranteed Return For Life

  • Multiple Annuity Options

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Buy Online and Get ₹ 1.4 Lacs extra#
Secure Your Retirement with Annuity Plans
100% Guaranteed
Pension For Life
+91
View Plans
Please wait. We Are Processing..
Plans available only for people of Indian origin By clicking on "View Plans" you agree to our Privacy Policy and Terms of use #For a 55 year on investment of 20Lacs #Discount offered by insurance company
Get Updates on WhatsApp
We are rated
rating
58.9 million
Registered Consumers
51
Insurance
Partners
26.4 million
Policies
Sold

Formula: 

The formula for calculating the future value of annuity due is: 

FVA Due = P * {(1 + r) n - 1) * (1 + r) / r}, 

Where, 

FVA denotes Future Value of Annuity 

P denotes Periodic Payment

n denotes Number of Periods

r denotes Effective interest rate 

To elaborate further, let us understand the same through some examples:

Mr. A decides to deposit a monthly payment of Rs 2,000/- for the next four years at the beginning of each month. The ongoing interest rate being charged by the bank is 5%. 

Number of periodic payments in a year

12

Monthly Payment (P)

Rs 2,000/-

The effective rate of Interest ( r ) 

0.42%

Number of Periods ( n )

48

Future value of Annuity Due = 2,000 * {(1 + 0.42%) 48 - 1} * (1 + 0.42%) / 0.42% = Rs 1,06,472/-.  

Mr. B plans to deposit Rs 5,000/- at the beginning of each year for 7 years. The ongoing rate of interest in the market is 5%. 

The FV of Annuity Due = P * {(1 + r) n - 1} * (1 + r) / r

= 5000 * {1 + 5%) 7 - 1} * (1 + 5%) / 5% = Rs 42,746/-. 

The following steps are to be followed: 

  • Determine the amount that is to be paid in each period. The payments should be equal to periodic payments. They are referred to as P. 

  • Next, find out the interest rate charged based on the rates prevalent in the market. It is denoted by r. 

  • The formula to calculate r i.e. annualized rate of Interest/ number periodic payments in a year. 

  • It is the interest rate to be received by the investor when the money is invested in the market. 

  • After which, the total number of periods is derived by multiplying the number of years with the number of periodic payments, i.e., n = Number of years * Number of periodic payments in a year. 

  • Then, the future value of an annuity can be calculated using the formula stated above.        

How Is the Formula for Future Annuity Due Derived?

In the first alternative, FV = PV (1 + r) n, i.e., you can multiply (1 + r) n by the current value of annuity due. The formula for current value of annuity due is (1 + r) * P {1 - (1 + r) - n} / r.    

 The second method is to make a comparison between the cash movements in an annuity due and an ordinary annuity.

  • For an annuity due = P (1 + r) + P (1 + r) 2 ………. P (1 + r) n

  • For an ordinary annuity = P + P (1 + r) ………P (1 + r) n - 1

The annuity due cash flow becomes equivalent to the ordinary cash flow when (1 + r) is factored.   

In Conclusion

The formula used is quick, easy to comprehend, and useful to the user at multiple stages in life.

FAQ's

Pension plans articles

Recent Articles
Popular Articles
How to Get a 50K Pension Per Month?

15 Jun 2022

Retirement planning should form an essential part of your
Read more
NPS Premature Withdrawal

15 Jun 2022

The National Pension Scheme is the Central Government’s social
Read more
Get 30K Pension Per Month

15 Jun 2022

Planning retirement is extremely important and crucial these
Read more
Atal Pension Yojana Premium Chart

08 Jun 2022

Atal Pension Yojana (APY) is a government of India initiative to
Read more
Pension Scheme for Senior Citizens

02 Jun 2022

Retirement planning is paramount to creating a constant source
Read more
National Pension Scheme (NPS) – Govt Approved Pension Scheme
National Pension Scheme or NPS scheme is an investment cum pension plan launched by the Indian Government. This
Read more
NPS Calculator - National Pension Scheme Calculator Online
National Pension Scheme Calculator is an online tool, which allows the individual to calculate the estimated
Read more
How to Get a 50K Pension Per Month?
Retirement planning should form an essential part of your financial decision-making. As we grow older, job
Read more
Post Office NPS Calculator 2023
National Pension System is a scheme launched by the Government of India that offers stability to all Indian
Read more
NPS Tier 2 Account Advantages and Disadvantages
NPS, or the National Pension Scheme, is an initiative taken by the Central Government that protects the holder's
Read more

top
Close
Download the Policybazaar app
to manage all your insurance needs.
INSTALL