1. What is Present Value of Annuity?

The Present Value of an Annuity is the current worth of a series of future payments (annuity) discounted at a specific interest rate. It helps determine how much a future stream of payments is worth today.

2. How Does the Calculator Work?

The calculator uses the Present Value of Annuity formula:

Where:

• \( PV \) — Present Value (current worth)
• \( PMT \) — Periodic payment amount
• \( r \) — Periodic interest rate (in decimal)
• \( n \) — Number of periods

Explanation: The formula discounts each future payment back to the present using the periodic interest rate and sums all these present values.

3. Importance of PV Calculation

Details: Calculating present value is essential for financial planning, investment analysis, loan amortization, and comparing different financial options with cash flows occurring at different times.

4. Using the Calculator

Tips: Enter the periodic payment amount, periodic interest rate (as decimal, e.g., 0.05 for 5%), and number of periods. All 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. This calculator assumes ordinary annuity.

Q2: How does interest rate affect present value?
A: Higher interest rates result in lower present values, as future payments are discounted more heavily.

Q3: Can this be used for monthly payments?
A: Yes, just ensure all inputs use the same period (monthly payment, monthly rate, and number of months).

Q4: What if the interest rate is zero?
A: The formula simplifies to PV = PMT × n, as there's no time value of money.

Q5: How accurate is this calculation?
A: It's mathematically precise for fixed payments and constant interest rates, but real-world scenarios may have additional variables.