1. What is Present Value of Ordinary Annuity?

The present value (PV) of an ordinary annuity is the current worth of a series of equal payments to be made at the end of each period over a fixed amount of time. It accounts for the time value of money, recognizing that money available now is worth more than the same amount in the future.

2. How Does the Calculator Work?

The calculator uses the ordinary annuity formula:

Where:

• \( PV \) — Present value of the annuity
• \( PMT \) — Periodic payment amount
• \( r \) — Interest rate per period (in decimal form)
• \( n \) — 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, retirement planning, and evaluating business projects.

4. Using the Calculator

Tips: Enter the periodic payment amount, interest rate per period (as percentage), 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 because future payments are discounted more heavily.

Q3: Can this be used for monthly mortgage calculations?
A: Yes, with monthly payment amounts and monthly interest rates (annual rate divided by 12).

Q4: What if the interest rate is zero?
A: The formula simplifies to PV = PMT × n, since there's no time value of money.

Q5: How accurate is this calculation?
A: It's mathematically precise for fixed payments, fixed interest rates, and fixed periods.