Home
Back
Ordinary Annuity Formula:
| From: | To: |
The present value of an ordinary annuity calculates the current worth of a series of equal payments to be made in the future, discounted at a specific rate. It's commonly used to evaluate pension plans, lottery payouts, and other structured payment systems.
The calculator uses the ordinary annuity formula:
Where:
Explanation: The formula discounts each future payment back to its present value and sums them all together.
Details: Calculating present value helps compare different pension options, understand the true value of future payments, and make informed financial decisions about retirement planning.
Tips: Enter the periodic pension payment amount, discount rate (as decimal - e.g., 5% = 0.05), and number of payment periods. All values must be positive numbers.
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 affects the present value calculation.
Q2: How do I choose an appropriate discount rate?
A: The discount rate should reflect the opportunity cost of capital or the rate of return you could earn on alternative investments with similar risk.
Q3: Can this be used for monthly pension payments?
A: Yes, but ensure the discount rate and number of periods match the payment frequency (use monthly rate and total months).
Q4: What if the payment amounts change over time?
A: This calculator assumes constant payments. For variable payments, each payment must be discounted separately.
Q5: How does inflation affect this calculation?
A: The discount rate should account for expected inflation. Real rates (adjusted for inflation) are often used for long-term calculations.