1. What is the Present Value of Annuity?

The present value of an annuity is the current worth of a series of future cash flows (payments) discounted at a specific interest rate. It helps determine how much a stream of future payments is worth in today's dollars.

2. How Does the Calculator Work?

The calculator uses the annuity formula:

Where:

• \( PV \) — Present value of the annuity
• \( PMT \) — Periodic payment amount
• \( r \) — Periodic interest rate (in decimal form)
• \( n \) — Number of payment periods

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

3. Importance of PV Calculation

Details: Calculating present value is essential for comparing investment options, valuing pensions or annuities, and making informed financial decisions about loans, leases, or retirement planning.

4. Using the Calculator

Tips: Enter the periodic payment amount, the periodic interest rate (as a decimal, e.g., 0.05 for 5%), and the number of payment 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 do I convert annual rate to periodic rate?
A: Divide the annual rate by the number of periods per year. For monthly payments with 6% annual rate: 0.06/12 = 0.005.

Q3: What if my payments grow over time?
A: This calculator assumes constant payments. For growing annuities, a different formula is needed.

Q4: Can I use this for loan calculations?
A: Yes, this can calculate the principal amount (PV) based on regular loan payments (PMT), interest rate, and term.

Q5: What's the relationship between PV and interest rates?
A: Present value decreases as interest rates increase, since future payments are discounted more heavily.