DEFINITION of 'Future Value Of An Annuity'
The value of a group of payments at a specified date in the future. These payments are known as an annuity, or set of cash flows. The future value of an annuity measures how much you would have in the future given a specified rate of return or discount rate. The future cash flows of the annuity grow at the discount rate, and the higher the discount rate, the higher the future value of the annuity.
This calculation is useful for determining the actual cost of an annuity to the issuer:
C = Cash flow per period
i = Interest rate
n = Number of payments
This calculates the future value of an ordinary annuity. To calculate the future value of an annuity due, multiply the result by (1+i). (Payments start immediately instead of one period into the future.)
INVESTOPEDIA EXPLAINS 'Future Value Of An Annuity'
The basis is that providing a lump sum of $5,000 today costs more than providing a cash flow of $1,000 per year for five years. This is because if you provide the lump sum today, you could have invested it and received an additional return.
Using this example, and assuming a discount rate of 6%, the future value of an annuity that pays $1,000 per year for five years is $4,212 (1,000*[(1+0.06)^{5}1/0.06]=5,637). This means that if you could get a return on your invested funds of 6% per year, providing an annuity of $1,000 per year would be worth $637 ($5,637$5,000) more to the issuer than giving a lump sum.

Annuity
A financial product that pays out a fixed stream of payments ... 
Discount Rate
The interest rate charged to commercial banks and other depository ... 
Dedication Strategy
A method by which the anticipated returns on an investment portfolio ... 
Annuity Table
A method for determining the present value of a structured series ... 
Annuity Due
An annuity whose payment is to be made immediately, rather than ... 
Future Value  FV
The value of an asset or cash at a specified date in the future ...

Investing Basics
Calculating The Present And Future Value Of Annuities
At some point in your life, you may have had to make a series of fixed payments over a period of time  such as rent or car payments  or have received a series of payments over a period of time, ... 
Investing Basics
Understanding The Time Value Of Money
Find out why time really is money by learning to calculate present and future value. 
Home & Auto
An Overview Of Annuities
These contracts provide a guaranteed income stream. Learn how they work and their benefits. 
Options & Futures
Selecting The Payout On Your Annuity
Make sure you understand your options for withdrawing your funds from this complex instrument. 
Options & Futures
Personal Pensions: Repackaging The Annuity
Discover an investment that can provide a stable income once you've left the work force. 
Retirement
The Cost Of Variable Annuity Guarantees
These products tempt investors with some impressive benefits  but they come at a price. 
Professionals
Are Longevity Annuities in 401(k)s a Good Idea?
An in depth look at the arrival of longevity annuities in 401(k)s and IRAs. 
Retirement
How To Move From Nest Egg To Income?
Income vs. a nest egg is closely tied to what most of us are ultimately interested in for retirement – maintaining our standard of living and to travel. 
Retirement
Strategies To Build Your Retirement Portfolio
Retirement indexes are designed to estimate how much an investor would need to have saved today to generate annual income in retirement, starting at 65. 
Investing
What are FixedIncome Securities?
For a fixedincome security, the periodic return on the investment is the same throughout the life of the security. Principal is returned at the time of maturity. The payment can be in the form ...