Annuity Formula

What is Annuity?

Annuity is a series of equal payments made at regular intervals over a period of time. The annuity formula is used to calculate the present value or future value of these payments.

Define Annuity Formula.

Annuity formula calculates the present or future value of a series of equal payments made at regular intervals. For an ordinary annuity, the present value is P_VA = P_MT × {1 – (1+r)^-n} and the future value is F_VA = P_MT × {(1+r)ⁿ – 1}

What is difference between immediate annuity and deferred annuity.

Difference between immediate and deferred annuity lies in the time period when the money is invested in the plan. In immediate annuity, the entire amount is invested as a lumpsum in the plan whereas in deferred annuity, first the corpus is built and then the annuity plan is purchased using the corpus.

What all factors are considered by the annuity formula to calculate present or future value?

Annuity formula takes into account the present value of annuity, rate of return or interest and the number of time periods.

Give an example of variable annuity plan.

National Pension Scheme is an example of variable annuity plan where the subscriber invests his money with various pension funds and then receives return on his money based on the market scenario.

Annuity formula is a mathematical formula used to calculate the annuity value. Annuity can be defined as the income earned by an individual by investing the money as a lump sum or at regular intervals with a company. Income earned by an individual may be given at once or may be given at regular intervals by the company to the concerned person. Thus annuity formula is used to find the present value or the future value of an amount when any one of the two is given.

In this article, we have covered various Annuity Formulas and others in detail.