1. What is Present Value of Annuity?

The present value of an annuity is the current worth of a series of future cash flows (payments) given a specified rate of return. It helps determine how much a series of future payments is worth today.

2. How Does the Calculator Work?

The calculator uses the present value of annuity formula:

Where:

• \( PV \) — Present value (current worth)
• \( PMT \) — Monthly payment amount
• \( r \) — Annual interest rate (as percentage)
• \( n \) — Term in years

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

3. Importance of PV Calculation

Details: Calculating present value helps in comparing investment options, determining loan amounts, and evaluating retirement plans or other financial products.

4. Using the Calculator

Tips: Enter the monthly payment amount, annual interest rate (as percentage), and term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between present value and future value?
A: Present value calculates what future cash flows are worth today, while future value calculates what current money will be worth in the future.

Q2: How does interest rate affect present value?
A: Higher interest rates decrease present value because money grows faster, making future payments less valuable today.

Q3: What's an ordinary annuity vs. annuity due?
A: Ordinary annuity has payments at the end of each period (this calculator), while annuity due has payments at the beginning.

Q4: Can I use this for annual payments?
A: No, this calculator is specifically for monthly payments. The formula would need adjustment for annual payments.

Q5: Why is present value important for retirement planning?
A: It helps determine how much you need to invest today to achieve a desired future income stream.