1. What is Present Value of Ordinary Annuity?

The present value of an ordinary annuity is the current worth of a series of future cash flows discounted at a specific interest rate. It helps determine how much a future annuity is worth in today's dollars.

2. How Does the Calculator Work?

The calculator uses the present value of ordinary annuity formula:

Where:

• \( PV \) — Present value of the annuity
• \( FV \) — Future value of the annuity
• \( r \) — Interest rate per period (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 PV Calculation

Details: Calculating present value helps in comparing investment options, determining loan amounts, and making informed financial decisions about annuities and retirement planning.

4. Using the Calculator

Tips: Enter future value in dollars, interest rate as decimal (e.g., 5% = 0.05), 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: 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: Retirement planning, loan amortization, bond valuation, and any scenario involving regular future payments.

Q4: Can this be used for monthly payments?
A: Yes, but ensure the interest rate is the monthly rate and periods are in months.

Q5: What if the interest rate is zero?
A: The formula simplifies to PV = FV × n, as there's no time value of money.