Calculate Annuities on a Finance Calculator

Annuities are investment tools that provide people with fixed payments made at specified intervals. The most common type of annuity is deferred. Under this arrangement, you pay into the fund over a period of time and then take payments beginning at a specific date, often upon your retirement. Determining your annuity payment is a complex calculation, but it can be made easier by carefully considering the pertinent parameters and using a financial calculator. If you want to learn how to calculate annuities on a financial calculator, follow these steps.

Steps

  1. Gather the applicable data. You need to know certain variables before you can calculate annuity payments. They include:
    • Future value: This is the amount of money you will need to meet a future expense, like your child's college tuition. You can find future value using a formula that accounts for initial investment, periodic deposits and interest rates.
    • Present value: This is a known amount that you are drawing payments from, as with loans and some retirement instruments.
    • Interest rate: Often expressed as an annual rate, this figure may be compounded at other periodic intervals (e.g., monthly or quarterly). The annual rate should be divided by the number of periodic rates used. For example, if the annual rate is 6 percent and you're trying to determine the compound-interest rate on a quarterly basis, divide 6 by 4. The quarterly interest rate is 1.5 percent.
    • Payment periods: The number of projected payments. For example, if you're drawing monthly annuity payments over a 20-year span, you will be getting 240 fixed payments from an ordinary annuity.
  2. Use an online financial calculator to help you determine the amount of money you'll need to meet future financial goals. An online financial calculator will guide you through computations without bogging you down with special applications and algebraic equations. Simply input the pertinent values as indicated. The online calculator will require certain variables, depending on the type of annuity you're interested in:
    • Principle: This represents the initial investment in the annuity.
    • Amount Available to Invest: This dollar figure represents either the periodic payment you'll be contributing to the annuity, or the present value, which is the amount available for withdrawals.
    • Annual Interest Rate
    • Payment Period
  3. Calculate periodic payments for an immediate annuity. If you inherit money and want to receive it in small increments rather than a lump sum, you can set up an immediate annuity. An insurance company will provide you with a payment schedule set over a certain period of time based on a fixed interest rate. Input the relevant figures in the calculator, click the calculate button, and your periodic payment would be rendered. For example:
    • Input the amount of money you have to invest. Say this figure is $1,000,000.
    • Enter the annual interest rate, for example, 2 percent.
    • Add the payment period to the calculation, in years.
    • Click the calculate button. The calculator will compute monthly, quarterly and annual payments based on the figures you entered. In this example, the annual payment would be about $61,000, or about $5,000 per month.
  4. Determine the future value of an annuity. You can use an online financial calculator to determine the future value of your annuity at the time of retirement. This can help you better gauge your path to retirement and balance your investment portfolio accordingly. To make this calculation, you will need to know the amount if your initial investment, amount of monthly installments, annual percentage rate, and the duration of the payment period. For example:
    • You make an initial deposit into the annuity of $20,000.
    • You plan to contribute $200 to the annuity each month.
    • Your money is getting a 4.0 percent annual interest rate.
    • You will make deposits into the annuity for 30 years, or 360 payments.
    • Click the calculate button. Based on the figures you put in, the calculator will show the future fund value at $204,855.95. From that point, you can deduce your periodic payments.

Calculate Annuity Payments Using a Hand-held Financial Calculator

  1. Become familiar with keying functions on your hand-held calculator. Refer to your model's user guide on how to make computations for specific annuity types, but keep in mind important keying functions when doing complex computations:
    • Alternate-function keys: The f (gold) and g (blue) alternate-function keys are laminated on the face of the calculator over the function keys.
    • Store i (compound interest rate) and n (number of payment periods) by entering the figure and pressing the alternate-function key.
    • Use alternate-function g BEG to compute payments made at the start of a period, like when you're trying calculate the future value of an annuity. Use g END for payments that are made at the end of a period.
  2. Practice annuity computations on a hand-held calculator. Find the payment amount on an ordinary annuity by following these steps:
    • Press f CLEAR to clear previous calculations.
    • Enter the number of payment periods using n, or multiply by 12, and enter the periodic interest rate using i, which is the annual rate divided by 12.
    • Enter either the present value, or the PV key, or the future value, or the FV key, or both.
    • Set the proper payment mode by either pressing g BEG or g END.
    • Press PMT to get the payment amount.



Tips

  • If you need to compute annuity payments or future values at a remote location, you can use a hand-held financial calculator to achieve results. Hand-held financial calculators function the same as their online counterparts, but the onus is on you to input the figures sequentially based on the formula you need.

Related Articles

Sources and Citations

Retrieved from "https://kipkis.com/index.php?title=Calculate_Annuities_on_a_Finance_Calculator&oldid=351157"