1. What is the Annuity Present Value Formula?

The annuity present value formula calculates the current worth of a series of future equal payments (annuity) discounted at a specific interest rate. It's used in finance to evaluate investments, loans, and retirement planning.

2. How Does the Calculator Work?

The calculator uses the annuity present value formula:

Where:

• \( PV \) — Present value of the annuity
• \( PMT \) — Regular payment amount
• \( r \) — Interest rate per period (in decimal)
• \( n \) — Number of payment periods

Explanation: The formula discounts each future payment back to present value terms and sums them all.

3. Importance of Annuity Calculations

Details: Annuity calculations are essential for retirement planning, loan amortization, bond valuation, and any financial decision involving regular payments over time.

4. Using the Calculator

Tips: Enter payment amount in currency units, interest rate as a decimal (e.g., 0.05 for 5%), and number of periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

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

Q2: How does increasing the interest rate affect PV?
A: Higher interest rates decrease the present value of future payments because money today is worth more relative to money tomorrow.

Q3: What if the payments grow over time?
A: For growing annuities, a modified formula is needed that accounts for the growth rate of payments.

Q4: Can this be used for monthly payments?
A: Yes, but ensure the interest rate and number of periods match the payment frequency (use monthly rate and total months).

Q5: What's the perpetuity case?
A: When n approaches infinity, the formula simplifies to PV = PMT/r (perpetuity formula).