1. What is the Present Value of an Ordinary Annuity?

The present value of an ordinary annuity calculates the current worth of a series of equal payments to be made at the end of each period over a specified time, discounted at a given interest rate.

2. How Does the Calculator Work?

The calculator uses the ordinary annuity present value 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 its present value and sums them all together.

3. Importance of Present Value Calculation

Details: Calculating present value helps compare investment options, determine loan amounts, evaluate retirement plans, and make informed financial decisions.

4. Using the Calculator

Tips: Enter the periodic payment amount, periodic interest rate (as decimal), 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.

Q2: How do I convert annual rate to periodic rate?
A: Divide annual rate by number of periods per year (e.g., for monthly payments, divide annual rate by 12).

Q3: What if my interest rate is 0%?
A: The formula simplifies to PV = PMT × n, since there's no discounting.

Q4: Can this be used for loan calculations?
A: Yes, this calculates the present value of future loan payments at a given interest rate.

Q5: How does compounding frequency affect the calculation?
A: More frequent compounding (with adjusted rate and periods) will yield slightly different results.