1. What is Present Value of Annuity?

The present value of an annuity is the current worth of a series of future payments (annuity) discounted at a specific rate of return. It helps determine how much you'd need to invest today to receive a specific payment stream in the future.

2. How Does the Calculator Work?

The calculator uses the present value annuity formula:

Where:

• \( PV \) — Present value of the annuity
• \( PMT \) — Periodic payment amount
• \( r \) — Periodic interest rate (as 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 Present Value Calculation

Details: Present value 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, interest rate per period (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: This calculator assumes ordinary annuity (payments at end of period). For annuity due (payments at beginning), multiply result by (1 + r).

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 payments grow over time?
A: This calculator assumes constant payments. For growing annuities, a different formula is needed.

Q4: Can I use this for loan calculations?
A: Yes, this can calculate the present value of loan payments or determine how much loan you can afford.

Q5: How does compounding frequency affect results?
A: More frequent compounding (with appropriate rate adjustment) will decrease the present value.