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) discounted at a specific interest rate. It helps determine how much a stream of future payments is worth today.

2. How Does the Calculator Work?

The calculator uses the PV of annuity formula:

Where:

• \( PMT \) — Periodic payment amount
• \( r \) — Interest rate per period (as decimal)
• \( n \) — Number of periods

Explanation: The formula discounts each future payment back to the present using the time value of money concept.

3. Importance of PV Calculation

Details: PV calculations are essential for retirement planning, loan amortization, investment analysis, and comparing different financial options.

4. Using the Calculator

Tips: Enter the periodic payment amount, interest rate (as percentage), 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 payments occur at the end of each period, while annuity due payments occur at the beginning. This calculator assumes ordinary annuity.

Q2: How does compounding frequency affect the calculation?
A: The rate and periods must match the compounding frequency (annual, monthly, etc.).

Q3: What if my payments grow over time?
A: This calculator assumes constant payments. For growing annuities, a different formula is needed.

Q4: Can I use this for mortgage calculations?
A: Yes, this can calculate the present value of mortgage payments, though specialized mortgage calculators might be more convenient.

Q5: How does inflation affect PV?
A: The discount rate should account for expected inflation. Higher inflation reduces the present value.