Future Value of an Annuity

This video explains what the future value of an annuity is and illustrates how to calculate it using a formula.
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[@amnak.alsh.1239]

thank you so much, I watched many trails for hours trying to understand but yours was the clearest and simplest one , Math always is simple but not all can explain it to be well understood.

[@ibrahimkhalifa1155]

Despite these courses are free , it’s more valuable than premium one.

[@Edspira]

Thank you!

[@asish635]

Please come to Paris and be a professor at Paris School of Business.

[@saibijaychhetri4081]

The way of your teaching is excellent sir........lots of love to you.

[@bhavikupadhyaya972]

Rutgers School of Business needs you sir thank you for making this simple the way my professor explained it had me very confused

[@mghilbers]

you are a life saver. all of your videos are such a great help!

[@alisonoconnor3272]

Thank you for making this so simple.

[@Edspira]

No problem!

[@yoshionimusha2636]

i wish i had this youtube channel in college. it would have made life a lot easier 😂 now i’m here for fun

[@Kle12nj2]

Greetings from IBMEC - Rio de Janeiro, thank you for the outstanding video.

[@kamlendrasharma5105]

simply explained the critical concept. Thanks a lot.

[@eclipseluna-jw1wv]

Lowkey panicking here. I don’t understand how to do it when it’s compounded quarterly. I’ve attempted this question 6 times and I have not gotten it correct once. I even tried to use a calculator online so I could see what I’m supposed to be doing. The question is: “Suppose youre offered the following three accounts to invest $10,000 for 20 years: 19% simple interest, 9% interest compounded monthly, and an annuity with quarterly payments of $125 at 14% interest compounded quarterly. Which is the best choice? Round your answers to the nearest tenth.” I have the simple and the compounded interest down, but I can’t for the life of me understand annuity compounding. The other two are $48,000 and $60,091.52 respectively. My answer by doing the math myself for the annuity was $31,853,555.19. I know it’s way off but I just do not understand. If it’s quarterly payment, then wouldn’t there be 80 periods over 20 years? I don’t know what I’m not understanding.

[@PhilipHazey]

i think you want to devide r the % by 4 but multiply the periods by 4 too . but dont quote me on that

[@szymon3483]

@Edspira What if the interest rate is compunded monthly? How do i do it? Here is an example of a task: "A Four year lease agreement requires payments of 10000 at The beginning of every year. The interest rate is 6% compounded monthly, what is The cash value of the lease?"ps: I know this is annuity due

[@1972hattrick]

Wouldn't i become i/t and then n becomes 12*n?

[@pressplayworkflow]

Thank you for these videos! One question though, what is the purpose of +1 and -1 in the given formula?

[@Edspira]

This is more a mathematical question of how the formula is derived, which is not my forte as an accountant. I unfortunately don't know the answer to this. Hopefully another viewer will step-up and answer this question for you. Best of luck to you!

[@pressplayworkflow]

Thank you for taking the time though, much appreciated

[@LP-yc7ps]

@@pressplayworkflow Mathematically, the purpose of the +1 and the -1 is that if the +1 is not there, then a decimal multiplied by itself will only get smaller, when actually what you want is the compounded interest rate which should be larger than the interest rate for just one year. So you add +1 to avoid this, and then since you have added 1, you then need to subtract 1. Because 1 to the power of anything is 1, it doesn't affect the exponent element at all.

[@wudi00]

I do really like your videos!

[@Edspira]

Great!

[@benjipearrson]

3:44 wonder if he’s scanned his computer yet… 🤔

[@summerjho2781]

Thank you!

[@sdiptanil]

Edspira, I have a question here : For calculating the future value, am I correct that at one side there will be devaluation of money & on the other side there will be interest paid by the bank on 500 USD & we have to incorporate both ? In this video are we considering both or only the interest paid by the bank ?

[@Edspira]

Diptanil, This video is from the perspective of the investor. Let's say you invested $500 every 5 years. Due to the time value of money, the lender would pay you $375.37 in interest. So, at the end of year 5, you would receive your investment of $2,500 ($500 x 5 years) plus $375.37 in interest for a total value of $2,875.37. Money is not being "devalued". I hope this helps!

[@PhilipHazey]

@@Edspira the money is being devalued due to inflation but we are just looking at the money not the buying power, hope this helps you diptanil

[@tanyamontrilojwong8309]

If I want to calculate for the payment, how do I know when should I use present one or future one?

[@princediop8190]

Praew Trilojwong payment would utilize present value

[@huyly6648]

Thanks for your video! I'm just wondering that why do we have to divide the interest rate "r" in both cases of Pv and FV of an Annuity? Because C* the nominator seems correct enough..

[@juliadasilva3331]

Thank you so much! you were very helpful!

[@itsdannyftw]

Does the formula change whether you're dealing with ordinary annuity or annuity due? You don't seem to discuss about this and I am just wondering. Thank you.

[@Edspira]

I hope to make a separate video for annuity due in the future. The short answer is that: Annuity Due = Ordinary Annuity * (1 + interest rate)

[@itsdannyftw]

Thanks - somehow came back here 3 years later lol

[@0bbos]

Sir could you please tell us where you got 2875 answer ? My answer is all the time 2675 whenever I calculate . Could you please tell me ?. Thanks in advance )

[@kaarinaMoongo]

Y do some people state Fv formula as FV = C *[ { (1+r)-1 } /r] (1+r). ?

[@TheSantoguru]

That is the future value of Annuity Due. The video explains the formula for future value of Ordinary Annuity.

[@cameronharrington354]

Is rate of return the same as insurance rate?

[@artificialgamer6520]

sir agr ham point ke baad ke sirf 4 numbers ko lekar solve kare to hamara answer jyada aata hai 1 to 10 rs tak aur agar calculator par show ho rahe sabhi number ko lekar solve kare to answer 1 to 10 rs tak ghat jata hai. kya sir paper me hamara answer sahi mana jayega agar maine calulator wale se kar diya to kyuki FVIFA(I,N) wale table me sirf point ke baad 4 hi number show hote hai wo bhi round off karke badha diya gaya rehta hai

[@changyuksong4636]

hello, im not sure you can see my comment or not, i really need your help T.T why we have to -1 and over i in this formula?

[@FilmyMountain]

Sir here what the meaning of denominatior r in this formula

[@awehngerb7725]

Hi, what is the point of the last deposit if it won’t be having and interest on it?

[@ube-23s]

Yea, finally, someone has the same thing like I am thinking. And in Annuity due we multiply the last one by 7% . And that is the different between Ordinary and Due.

[@dariru4018]

Formula derivation: FVAD = 0 + A(1 + r)^1 + A(1 + r)^2 + ...+ A(1 + r)^n-1+ A(1 + r)^n. FVOA = A(1 + r)^0 + A(1 + r)^1 + A(1 + r)^2 +... + A(1 + r)^n-1 + 0. Annuity Difference Formula FVAD - FVOA = A(1 + r)^n - A(1 + r)^0 = A(1 + r)^n - A = A[ (1+r)^n -1 ] Perpetuity = A/r, FV=A[ (1+r)^n -1 ] /r PV= FV/(1+r)^n = A[ (1+r)^n -1 ] /r(1+r)^n PMT(Annuity)= FV*r/[(1+r)^n-1]

[@kageemo]

how can i calculate if it for like let say 6month ?

[@salvationinvestors4097]

Why divide by . 05?

[@princewembo8905]

you sound amazing on x2 lol

[@christianstill.6654]

WHY DIVIDE BY "r" ?? 🤔🤔🤔

[@RP-rb1fb]

bhay ly thanku

[@megananema467]

I am struggling with this future value question on my test: "Calculate the future value on 31st December 2023, when you invest €2,000 per year in your account, starting 1st of January 2019 for the next five years, assuming an annual interest rate of 7%." What I did was €2,000 * 1.07ˆ5 but this is not correct. Can anybody help me?

[@cushiticboya.2305]

I got 8879.89 as answer, cause I did 1.07^4 and not ^5 because he is doing 1 deposit a year of 2k, 2023-2019=4. correct me if im wrong thoo

[@fizzahfatima5167]

You will solve it like this 2000*1.07*5 - 1/0.07= 11501.47 I have solved my question with this formula and got the right answer. Btw you would have solved it by this time. Do tell me if the answer is right.

[@Clifffffffffford]

👍

[@hanifsherdil]

This video have double voice

[@Yumato-bh6es]

You almost sound like Technoblade