1. What is an Ordinary Annuity?

An ordinary annuity is a series of equal payments made at the end of consecutive periods over a fixed length of time. Examples include mortgage payments, car loan payments, and retirement savings contributions.

2. How Does the Calculator Work?

The calculator uses the ordinary annuity formula:

Where:

• \( FV \) — Future value of the annuity
• \( PMT \) — Periodic payment amount
• \( r \) — Interest rate per period (in decimal form)
• \( n \) — Number of periods

Explanation: The formula accounts for compound interest on each payment, with each payment compounding for one fewer period than the previous one.

3. Importance of FV Calculation

Details: Calculating the future value of an annuity helps in financial planning, retirement savings projections, and understanding the growth potential of regular investments.

4. Using the Calculator

Tips: Enter the periodic payment amount in dollars, interest rate per period in decimal form (e.g., 0.05 for 5%), and the number of periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ordinary annuity and annuity due?
A: Ordinary annuity payments are made at the end of each period, while annuity due payments are made at the beginning. Annuity due has higher future value.

Q2: How does compounding frequency affect the calculation?
A: The rate (r) and periods (n) must match the compounding frequency. For annual payments with monthly compounding, adjustments are needed.

Q3: What are typical applications of this calculation?
A: Retirement planning, loan amortization, savings goal planning, and investment growth projections.

Q4: Can this formula be used for decreasing annuities?
A: No, this formula assumes constant periodic payments. Variable payments require different calculations.

Q5: How does inflation affect these calculations?
A: Inflation reduces purchasing power. For real (inflation-adjusted) returns, use real interest rate (nominal rate minus inflation rate).