1. What is the Annuity Formula?

The annuity formula calculates the present value of a series of future payments. It's used in finance to determine how much a stream of future payments is worth today.

2. How Does the Calculator Work?

The calculator uses the simple annuity formula:

Where:

• \( PV \) — Present Value (currency)
• \( PMT \) — Payment Amount (currency)
• \( \text{Annuity Factor} \) — Dimensionless factor based on interest rate and time period

Explanation: The formula accounts for the time value of money, showing what a series of future payments is worth in today's dollars.

3. Importance of PV Calculation

Details: Present value calculation is crucial for financial planning, investment decisions, loan amortization, and retirement planning.

4. Using the Calculator

Tips: Enter the payment amount in dollars and the annuity factor (which you can get from annuity tables or other calculators). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ordinary annuity and annuity due?
A: Ordinary annuity payments are made at the end of each period, while annuity due payments are made at the beginning.

Q2: How do I find the annuity factor?
A: The annuity factor can be calculated as \( \frac{1 - (1 + r)^{-n}}{r} \) where r is the periodic interest rate and n is the number of periods.

Q3: What are common uses for this calculation?
A: Mortgage calculations, retirement planning, valuing bonds, and any situation involving regular payments over time.

Q4: Does this work for variable payments?
A: No, this simple formula assumes constant payments. Variable payments require more complex calculations.

Q5: How does inflation affect this calculation?
A: Inflation is accounted for in the discount rate used to calculate the annuity factor.