1. What is Ordinary Annuity PV?

The present value (PV) of an ordinary annuity calculates the current worth of a series of equal payments to be made at the end of consecutive periods, discounted at a given interest rate. It's fundamental in finance for valuing loans, retirement plans, and other periodic payment structures.

2. How Does the Calculator Work?

The calculator uses the ordinary annuity PV formula:

Where:

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

Explanation: The formula discounts each future payment back to the present using the time value of money principle.

3. Importance of PV Calculation

Details: Calculating PV helps compare investment options, determine loan amounts, plan retirement savings, and evaluate business projects with regular cash flows.

4. Using the Calculator

Tips: Enter payment amount in dollars, interest rate as a decimal (e.g., 5% = 0.05), 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 occur at the end of each period, while annuity due payments occur at the beginning. Annuity due has higher PV since payments come sooner.

Q2: How does interest rate affect PV?
A: Higher interest rates decrease PV because future payments are discounted more heavily.

Q3: Can this be used for monthly loan payments?
A: Yes, if you use monthly rate and number of months. Convert annual rate to monthly by dividing by 12.

Q4: What if payments grow over time?
A: This formula assumes constant payments. For growing annuities, a modified formula is needed.

Q5: How accurate is this calculation?
A: It's mathematically precise for fixed payments, fixed rates, and exact periods. Real-world variations may require adjustments.