# Future Value of an Annuity

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## Definition of 'Future Value of an Annuity'

The future value of an annuity is the amount of money that an annuity will be worth at a future date. It is calculated by multiplying the present value of the annuity by the future value interest factor. The present value of an annuity is the amount of money that you would need to invest today in order to receive the annuity payments. The future value interest factor is a number that tells you how much your money will grow over time, given a certain interest rate.

There are two types of annuities: ordinary annuities and deferred annuities. An ordinary annuity is an annuity in which you make payments for a certain period of time, and then you receive payments for the rest of your life. A deferred annuity is an annuity in which you make payments for a certain period of time, and then you receive payments starting at a later date.

The future value of an ordinary annuity can be calculated using the following formula:

FV = PMT * [(1 + r)n - 1] / r

where:

FV = future value of the annuity

PMT = periodic payment

r = interest rate

n = number of years

The future value of a deferred annuity can be calculated using the following formula:

FV = PMT * [(1 + r)n - 1] / r * (1 + r)t

where:

FV = future value of the annuity

PMT = periodic payment

r = interest rate

n = number of years until payments begin

t = number of years you receive payments

The future value of an annuity is an important concept to understand for anyone who is considering investing in an annuity. It can help you to determine how much money you will need to invest in order to achieve your retirement goals.

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