1. What is an Annuity?

An annuity is a series of equal payments made at regular intervals. This calculator computes the future value of an ordinary annuity with monthly compounding, which is common for retirement savings and other investment plans.

2. How Does the Calculator Work?

The calculator uses the annuity formula with monthly compounding:

Where:

• \( FV \) — Future value of the annuity
• \( PMT \) — Periodic payment amount
• \( r \) — Annual interest rate (in decimal)
• \( n \) — Number of years

Explanation: The formula accounts for monthly compounding by dividing the annual rate by 12 and multiplying the number of years by 12 for the total number of periods.

3. Importance of Annuity Calculations

Details: Understanding the future value of annuity payments helps in retirement planning, investment decisions, and comparing different savings options.

4. Using the Calculator

Tips: Enter the periodic payment amount in dollars, annual interest rate as a percentage (e.g., 5 for 5%), and the number of years. All values must be positive numbers.

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. This calculator assumes ordinary annuity.

Q2: How does compounding frequency affect results?
A: More frequent compounding (monthly vs. annually) yields higher returns due to the compounding effect.

Q3: Can I use this for loan calculations?
A: No, this is for investment growth. Loan calculations use different formulas for present value.

Q4: What if my payments increase over time?
A: This calculator assumes constant payments. For variable payments, more complex calculations are needed.

Q5: How accurate are these projections?
A: They're mathematically precise for given inputs, but actual returns may vary due to changing rates and other factors.