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What is an annuity? How do you calculate its value?

What is an annuity? How do you calculate its value?

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Answer #1

Annuity is a fixed sum paid to or received from someone over a period of time.

Parties can enter into contracts of annuity in which one party pays the other annuity.

Formula of finding Future Value of Annnuity:

FV = Future Value
PMT = Annuity
r = rate of interest
n= no of period
FV = PMT ( (1+r)^n- 1 ) / r

FORMULA TO CALCULATE PRESENT VALUE OF ANNUITY

Annuity PV Factor = P [ 1 - ( 1 + r )^-n ]
        r
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