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Ordinary Annuity Present Value Formula:
or for annuity payments:
\[ PV = PMT \times \frac{1 - (1 + r)^{-n}}{r} \]
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The present value of an ordinary annuity is the current worth of a series of equal payments to be made in the future, discounted at a specific interest rate. It helps determine how much a future sum or series of payments is worth today.
The calculator uses two formulas depending on input:
For single sum future value:
\[ PV = \frac{FV}{(1 + r)^n} \]For annuity payments:
\[ PV = PMT \times \frac{1 - (1 + r)^{-n}}{r} \]Where:
Explanation: The formulas discount future cash flows to account for the time value of money.
Details: Present value calculations are essential for investment analysis, loan amortization, retirement planning, and comparing financial options with different timeframes.
Tips: Enter either Future Value (for single sum) or Payment Amount (for annuity). Both can be entered but the calculator will prioritize the annuity calculation if both are provided.
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 does interest rate affect present value?
A: Higher interest rates result in lower present values as future cash flows are discounted more heavily.
Q3: What are typical uses for this calculation?
A: Mortgage calculations, retirement planning, bond pricing, and evaluating investment opportunities.
Q4: How accurate are these calculations?
A: They're mathematically precise for the given inputs, but assume constant interest rates and regular payment periods.
Q5: Can I calculate present value for irregular payments?
A: This calculator is for regular payments. Irregular cash flows require discounting each payment separately.