1. What is Present Value of Annuity?

The Present Value (PV) of an annuity is the current worth of a series of future cash flows (payments) given a specified rate of return. It helps determine how much a future stream of payments is worth today.

2. How Does the Calculator Work?

The calculator uses the Present Value of Annuity formula:

Where:

• \( PV \) — Present Value (current worth)
• \( PMT \) — Periodic payment amount
• \( r \) — Periodic interest rate (decimal)
• \( n \) — Number of periods

Explanation: The formula discounts each future payment back to its present value and sums them all together.

3. Importance of PV Calculation

Details: PV calculations are essential for financial planning, investment analysis, loan amortization, retirement planning, and comparing different financial options.

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 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 calculator assumes ordinary annuity.

Q2: How does compounding frequency affect the calculation?
A: You must use the periodic rate that matches your payment frequency (e.g., monthly rate for monthly payments).

Q3: What are common uses for this calculation?
A: Mortgage analysis, retirement planning, valuing bond payments, and evaluating business investment opportunities.

Q4: What if my interest rate changes over time?
A: This calculator assumes a constant rate. For variable rates, you'd need to calculate each period separately.

Q5: How is this different from future value of annuity?
A: Future value calculates what the payments will be worth at a future date, while present value calculates what they're worth today.