Compound an Annuity to a Future Value

Can someone please help explain the logic and reasoning behind the formula for calculating the future value of an annuity?

Example:

If $10,000 is invested at the end of each year for the next 10 years, earning 10% compounded annually, how much money will be in the account at the end of the 10th year?

Answer:

I understand that if I calculated it manually, it would look like this to give the resulting answer $159,374.25

Year 0: 0 (because this is the present value, no payment yet, payment is at end of first year)

Year 1: 0 * 1.1 + 10,000 = 10,000

Year 2: 10,000 * 1.1 + 10,000 = 21,000

Year 3: 21,000 * 1.1 + 10,000 = 33,100

Year 4: 33,100 * 1.1 + 10,000 = 46,410

Year 5: 46,410 * 1.1 + 10,000 = 61,051

Year 6: 61,051 * 1.1 + 10,000 = 77,156.1

Year 7: 77,156.1 * 1.1 + 10,000 = 94,871.71 

Year 8: 94,871.71 * 1.1 + 10,000 = 114,358.88

Year 9: 114,358.88 * 1.1 + 10,000 = 135,794.77

Year 10: 135,794.77 * 1.1 + 10,000 = 159,374.25

Question:

How does that manual calculation relate to this formula?
Future Value = (payment per period / rate per period) * [(1 + rate per period) ^ number of periods - 1]

2 Comments
 

Porro laborum numquam natus vel non et. Odio est reiciendis qui et. Dolorem error inventore minus tempora ipsum dignissimos maiores consequatur. Et nostrum repudiandae accusamus et.

Career Advancement Opportunities

June 2026 Investment Banking

  • Evercore 01 99.4%
  • Moelis & Company 01 98.8%
  • JPMorgan 01 98.2%
  • Guggenheim Partners 01 97.7%
  • Morgan Stanley 07 97.1%

Overall Employee Satisfaction

June 2026 Investment Banking

  • Moelis & Company No 99.4%
  • Morgan Stanley 01 98.8%
  • Evercore 01 98.2%
  • BMO Capital Markets 12 97.6%
  • Banco Santander 01 97.1%

Professional Growth Opportunities

June 2026 Investment Banking

  • Moelis & Company No 99.4%
  • Evercore No 98.8%
  • Morgan Stanley 05 98.2%
  • JPMorgan No 97.7%
  • BMO Capital Markets 12 97.1%

Total Avg Compensation

June 2026 Investment Banking

  • Vice President (14) $434
  • Associates (43) $259
  • 3rd+ Year Analyst (8) $210
  • 2nd Year Analyst (22) $179
  • Intern/Summer Associate (13) $156
  • 1st Year Analyst (75) $151
  • Intern/Summer Analyst (65) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
kanon's picture
kanon
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
DrApeman's picture
DrApeman
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
Betsy Massar's picture
Betsy Massar
98.9
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”