Finance / July 13, 2018 / Hattie Munoz
The future value of annuity due formula calculates the value at a future date. The use of the future value of annuity due formula in real situations is different than that of the present value for an annuity due. For example, suppose that an individual or company wants to buy an annuity from someone and the first payment is received today. To calculate the price to pay for this particular situation would require use of the present value of annuity due formula. However, if an individual is wanting to calculate what their balance would be after saving for 5 years in an interest bearing account and they choose to put the first cash flow into the account today, the future value of annuity due would be used.
Both of these measurements are key concepts for management in any industry. Retailers can use it to see how much product they must sell to meet their minimum costs. Manufacturers can calculate the amount of product that must be produced and sold during a period.
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