1. What is the Immediate Annuity Formula?

The Immediate Annuity formula calculates the fixed periodic payment (PMT) that can be withdrawn from a present value (PV) over a specified number of periods at a given interest rate. It's commonly used for retirement planning and loan amortization.

2. How Does the Calculator Work?

The calculator uses the Immediate Annuity formula:

Where:

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

Explanation: The formula calculates the fixed payment that can be made each period from an initial lump sum, accounting for both principal and interest.

3. Importance of PMT Calculation

Details: Accurate PMT calculation is crucial for retirement planning, loan amortization, and any financial scenario involving regular withdrawals from a lump sum while earning interest.

4. Using the Calculator

Tips: Enter present value 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: This calculator assumes ordinary annuity (payments at end of period). For annuity due (payments at beginning), multiply result by (1 + r).

Q2: How does compounding frequency affect results?
A: Ensure rate and periods match compounding frequency (e.g., monthly rate for monthly payments).

Q3: What happens if the denominator becomes zero?
A: This occurs when rate is zero, resulting in simple division of PV by periods.

Q4: Can this be used for loan payments?
A: Yes, it calculates fixed loan payments when you know PV, interest rate, and number of payments.

Q5: How accurate is this for retirement planning?
A: It provides theoretical maximum withdrawals assuming constant returns. Real-world planning should include safety margins.