Future Annuity Formula
Present
value of Future annuity may be calculated by the following formula
C x (Annuity
Factor) x Discount Factor
Future Annuity Formula Example
Mr. Saleem
Khan was offered an annuity amount of $ 25,000 for 3 years. Discount rate for
annuity is 5%. Annuity will start after 5 years. Calculate the present value of
the annuity.
1.
Calculate the annuity at year 5
=
1-(1.05)-3
.05
=2.723
= $ 25,000 x 2.723
=68,081
2.
Discount the present value at year zero
$ 68,081 x ( 1+.05)-5
=$68,081 x .7835
=53,343
Tip of future annuity
Two present value are
calculated
1. Present value is calculated at future year by annuity
factor (Single Value)
2. Present value is calculated by discounting the value
calculates by annuity factor.
