1. What is the Annuity Formula?

The annuity formula calculates the present value of a series of future periodic payments, discounted at a specific interest rate. This Schwab calculator helps determine the current worth of future cash flows.

2. How Does the Calculator Work?

The calculator uses the annuity formula:

Where:

• \( PV \) — Present value (USD)
• \( PMT \) — Periodic payment amount (USD)
• \( r \) — Interest rate per period (decimal)
• \( n \) — Number of periods (unitless)

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

3. Importance of Annuity Calculation

Details: Calculating annuity present value is crucial for retirement planning, loan amortization, and investment analysis to understand the current worth of future cash flows.

4. Using the Calculator

Tips: Enter periodic payment in USD, rate per period as a decimal (e.g., 0.05 for 5%), and number of periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ordinary annuity and annuity due?
A: Ordinary annuity assumes payments at end of period, while annuity due assumes beginning of period. This calculator handles ordinary annuities.

Q2: How does compounding frequency affect results?
A: Higher frequency increases effective rate. Ensure rate matches period (monthly rate for monthly payments).

Q3: Can this calculate loan payments?
A: Yes, it can calculate present value of loan payments or determine payment needed for a specific loan amount.

Q4: What are common uses for annuity calculations?
A: Retirement planning, bond valuation, lease agreements, and structured settlements.

Q5: How does inflation affect these calculations?
A: The rate should be a real rate (nominal rate minus inflation) for inflation-adjusted calculations.