FUTURE VALUE OF AN ANNUITY
Suppose you wish to determine the future value of a series of deposits of $1,000, deposited each year in the No Fault Vault Bank for five years, with the first deposit made at the end of the first year. If the NFV Bank pays 5% interest on the balance in the account at the end of each year and no withdrawals are made, what is the balance in the account at the end of the five years?
In equation form,
F V=\$ 1,000 \sum_{t=1}^{5}(1+0.05)^{N-t}=\$ 1,000(5.5263)=\$ 5,525.63
Summing the individual future values:
| Cash Flow | Amount | Future Value |
| C F_{1} | $1,000 | $1,215.51 |
| C F_{2} | $1,000 | 1,157.63 |
| C F_{3} | $1,000 | 1,102.50 |
| C F_{4} | $1,000 | 1,050.00 |
| C F_{5} | $1,000 | 1.000.00 |
| Total | $5,525.63 |
Calculator and spreadsheet inputs:
Periodic payment = PMT = 1,000
i = 5% (input as 5 for calculator, 0.05 for spreadsheet)
N = 5
Solve for FV