1. What is an Immediate Annuity?

An immediate annuity (annuity due) is a financial product that provides guaranteed periodic payments starting immediately. The present value calculation helps determine how much a series of future payments is worth today.

2. How Does the Calculator Work?

The calculator uses the immediate annuity (annuity due) formula:

Where:

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

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

3. Importance of Annuity Calculations

Details: Accurate annuity valuation is crucial for retirement planning, insurance products, and financial decision-making. It helps compare different payment options.

4. Using the Calculator

Tips: Enter payment amount in currency units, interest rate as 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: Annuity due payments occur at the beginning of each period, while ordinary annuity payments occur at the end. Annuity due has higher present value.

Q2: How does interest rate affect annuity value?
A: Higher interest rates decrease present value (future payments are discounted more heavily).

Q3: What are typical uses for immediate annuities?
A: Retirement income, lottery payouts, structured settlements, and pension benefits.

Q4: Can this calculator handle varying payment amounts?
A: No, this assumes constant payments. For variable payments, a different approach is needed.

Q5: How does compounding frequency affect the calculation?
A: The rate (r) and periods (n) must match the compounding frequency (annual, monthly, etc.).