Before we use the annuity formula, let's solve a short 3 year example
the "long way".
First we need the compound interest formula which is:
Total = Principal × ( 1 + Rate )^{years}
Now let's say the amount that we invest annually is $2,000 per year and the interest rate is 8%.


1) Solving the Total Amount
where the AMOUNT is the annual amount invested each year,
So, we have: $2,000 * { [1.36048896 1] ÷ .08 } — $2,000.00 $2,000 * { .36048896 ÷ .08 } — $2,000.00 $2,000 * { 4.506112 } — $2,000.00 $9,012.224 — $2,000.00 $7,012.22 Which is the answer we obtained using the "long" method at the top of this page.


