1. What is a Deferred Annuity?

A deferred annuity is a financial product where payments begin after an initial deferral period. The present value calculation accounts for both the deferral period and the payment period.

2. How Does the Calculator Work?

The calculator uses the deferred annuity present value formula:

Where:

• \( PMT \) — Periodic payment amount
• \( r \) — Periodic interest rate (as decimal)
• \( n \) — Number of payment periods
• \( d \) — Number of deferral periods

Explanation: The formula calculates the present value of an ordinary annuity and then discounts it back by the deferral period.

3. Importance of Present Value Calculation

Details: Calculating the present value helps compare deferred annuities with other investment options and determine their current worth.

4. Using the Calculator

Tips: Enter payment amount, interest rate (as percentage), number of payments, and deferral periods. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between immediate and deferred annuities?
A: Immediate annuities begin payments right away, while deferred annuities have a waiting period before payments start.

Q2: How does the deferral period affect present value?
A: Longer deferral periods reduce the present value since money is received further in the future.

Q3: What's a typical deferral period?
A: Deferral periods can range from a few years to several decades, depending on the annuity contract.

Q4: Can this calculator handle variable interest rates?
A: No, this calculator assumes a constant interest rate throughout both deferral and payment periods.

Q5: How are taxes considered in this calculation?
A: This calculation doesn't account for taxes. Consult a financial advisor for tax implications.