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 future value formula:

Where:

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

Explanation: The formula sums the future value of each payment, with each payment growing at the periodic interest rate for the remaining periods.

3. Importance of Future Value Calculation

Details: Calculating the future value of an annuity helps in financial planning, retirement savings projections, and comparing different investment options.

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 valid (payment > 0, rate ≥ 0, periods ≥ 1).

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.

Q2: Can I use this for monthly payments?
A: Yes, but ensure the interest rate matches the period (use monthly rate for monthly payments).

Q3: What if my payments change over time?
A: This calculator assumes constant payments. For variable payments, you'd need a different approach.

Q4: How does compounding affect the result?
A: More frequent compounding increases the future value. Ensure your rate matches your compounding period.

Q5: What's the simplified formula for ordinary annuity FV?
A: \( FV = PMT \times \frac{(1 + r)^n - 1}{r} \), which gives the same result as the summation formula.