Using a Financial Calculator to Determine the Future Value of Annuity Due
By Mark Long
To better understand investments and expenses, it is better to look at how much your money will be worth at the end of a certain term based on the perceived interest rate for your investment.
For example, if you are going to purchase an investment vehicle that will require you to make periodic payments for a certain amount of time, you can compute for the future value of annuity due by using the percentage growth of your investment. While doing the computation manually can be complicated, there are financial calculators that can take care of this. This is very necessary for people who look into buying annuities as investments or those who want to sell annuity payments.
Differentiating Between the Present Value and Future Value of Annuity Due
People who purchase annuities may be familiar with two things: the present value of annuity due and the future value of annuity due. If you asked the question, “for how much can I sell my annuity to a company?” then what you need to consider is the Present Value of Annuity. This is approximately the amount that you can ask in exchange for your annuity. But if you would like to determine if how much you would have earned if you are regularly saving a certain amount that earns a fixed amount of interest periodically, then you will need to use the Future Value of Annuity.
The Significance of the Future Value of Annuity Due
It is easier to demonstrate the Future Value of Annuities in terms of concrete figures. For examples, you are going to save $5000 annually and invest it in a financial vehicle that gives you 5% interest on your investment. If you do this for 15 years, at the end of the 15th year, you would have invested a total of $75000, and your investment’s value will be $113,287.46. This does not just apply on savings. This can also be used as basis for considering the future value of money that you spend regularly. Let’s say you spend $200 on leisure every month. Consider its value in 15 years if you had just invested it. The future value of annuity is also applied on insurance payments as well as that for mortgage.
Computing the Future Value of Annuity Due Using a Financial Calculator
While the formula for the Future Value of Annuity involves an exponential formula, it is not necessary to manually compute for it since there are a number of financial calculators that can be found online. If you regularly compute for the values of annuities, there are also apps that you can download to take care of the computations. What is necessary is that you could understand how the future value of annuity will indicate the value of your investment after a certain time. This will help you in choosing appropriate investment options and in letting go of the ones that no longer meet your financial goals. Keep in mind that time is one of the most important factors when making financial decisions.