Present Value of an Annuity Calculator
This calculator helps you determine the present value of an annuity based on your input parameters. Ideal for financial analysts and accountants, it simplifies complex computations to assist in investment and retirement planning.
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Data Source and Methodology
All calculations are based on formulas and data from authoritative sources such as financial textbooks and industry standards.
The Formula Explained
The present value of an annuity is calculated using the formula: PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the periodic payment, r is the interest rate per period, and n is the number of periods.
Glossary of Terms
- Periodic Payment (PMT): The fixed payment made in each period.
- Interest Rate (r): The interest rate applied per period.
- Number of Periods (n): The total number of payment periods.
How It Works: A Step-by-Step Example
For example, to find the present value of an annuity with periodic payments of $1,000, an interest rate of 5%, and 10 periods, apply the formula: PV = 1000 × [(1 - (1 + 0.05)^-10) / 0.05]. This simplifies to a present value of approximately $7,721.73.
Frequently Asked Questions (FAQ)
What is the present value of an annuity?
The present value of an annuity is the current value of a series of future payments, discounted at a specific interest rate.
How do changes in interest rates affect the present value?
Higher interest rates decrease the present value, while lower rates increase it.
What types of annuities can be calculated using this tool?
This tool is suitable for ordinary annuities, where payments occur at the end of each period.
Can I use this calculator for both fixed and variable annuities?
This calculator is designed for fixed annuities with consistent payment amounts.
Why is present value important?
Understanding present value is essential for comparing investment options and making informed financial decisions.
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- NIST — Weights and measures — nist.gov · Accessed 2026-01-19
https://www.nist.gov/pml/weights-and-measures - FTC — Consumer advice — consumer.ftc.gov · Accessed 2026-01-19
https://consumer.ftc.gov/
Last code update: 2026-01-19
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