To find the future value of a simple annuity, you use a formula that calculates how much money you will have in the future. The future value includes all the payments you’ve made plus the interest earned on those payments.

Formula for Future Value of a Simple Annuity

The formula is:

Where:

• $F$ = future value of the annuity
• $R$ = regular payment amount
• $i$ = interest rate per payment period
• $n$ = total number of payments

Example

You save $200 every month for 2 years in an account that earns an annual interest rate of 6%, compounded monthly. How much will you have at the end of 2 years?

Step 1: Identify the values

• $R=200$ (monthly payment),
• $i=\frac{6\%}{12}=0.005$ (monthly interest rate),
• $n=2\times 12=24$ (total payments over 2 years).

Step 2: Substitute the values into the formula

Final Answer:

The future value of the annuity is approximately $5086.39