Luckily, yes, there IS a
formula for finding the value of annuity investments!
Note: We are making
our investments at the beginning of each period (month
in most cases). The
typical annuity formula that appears in some Algebra
books is when the investment is made at the end of the
period. This causes the first month's interest to
be lost and isn't representative of how most people
invest.
Let's invest $100
each month at 12%*.
How much will we have in one year?
* If we invest EACH
MONTH,
we need to assume that the account will be compounded
MONTHLY
to use this formula.
Again, we'll use the "growth
factor" of money.
investment
amount = $100
At the end of
each month (period), we earn 1%...
So, each $1.00 will turn into $1.01...
growth factor = $1.01
interest per period = .01
number of
periods = 12
Here's the
formula:
With our numbers...
Hey, it works! We got the
same amount that we got doing it the long month-by-month
way. |
