Home
Back
Present Value of Ordinary Annuity Formula:
| From: | To: |
The present value of an ordinary annuity calculates the current worth of a series of equal payments made at the end of consecutive periods, discounted at a specific interest rate. It helps determine how much a future stream of payments is worth today.
The calculator uses the ordinary annuity present value formula:
Where:
Explanation: The formula discounts each future payment back to present value terms and sums them to find the total present worth of the annuity stream.
Details: Present value calculations are essential for financial planning, investment analysis, loan amortization, retirement planning, and comparing different financial options with time value of money considerations.
Tips: Enter the periodic payment amount in dollars, interest rate per period (as a decimal), and number of periods. All values must be positive numbers.
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 of each period.
Q2: How do I convert annual rate to periodic rate?
A: Divide the annual rate by the number of periods per year. For monthly payments, divide annual rate by 12.
Q3: What if the interest rate is zero?
A: When r = 0, the formula simplifies to PV = PMT × n (simple sum of all payments).
Q4: Can this calculator handle varying payment amounts?
A: No, this calculator is designed for equal periodic payments. Varying payments require more complex calculations.
Q5: How is this used in real-world applications?
A: Used for mortgage calculations, retirement planning, bond pricing, lease agreements, and any situation involving regular fixed payments.