Annuity Calculator - Present Value of Annuity
This annuity calculator computes the present value of a series of equal cash flows to be received in the future. Use this calculator to figure out what a future income stream is worth in today's dollars - whether it is from an annuity, business, real estate, or other assets.
If you want to compute today's present value of a single lump sum payment (instead of series of payments) in the future than try our present value calculator here.
Present Value of Annuity Calculator
Present value of an annuity is a time value of money formula used for measuring the current value of a stream of equal payments at the end of future periods. This is also called discounting. The present value of annuity calculation follows the concept of time value of money. Therefore, the Present Value of a future cash flow represents the amount of money today, which, if invested at a particular interest rate, will grow to the amount of the future cash flow at that time in the future.
For example, if you received $1 today and deposited it into a savings account, it would grow over time to be worth more than $1 in 10 years. This principle of financial life is a result of the time value of money, a concept that says that the value of your $1 now is higher compared to it’s value in the future. The present value calculation can also help you determine how much money to invest right now to be able to receive a specific return in the future.
There are only four variables involved in the calculation of the present value annuity – the payment frequency (annual/semi-annual, quarterly or monthly), number of payment periods, and the interest rate (or discount rate). To find the present value of annuities, punch in the figures for each variable in the above calculator.
When Is The Present Value of Annuity Calculator Used?
Frequently, the present value of annuity calculator is used for calculating the cash value of a court settlement, retirement funding needs or loan payments.
During court settlement, if the court states that the recipient of the settlement will receive $2,000 per month for 30 years and if the receiving party is not comfortable with the arrangement, they may opt to calculate the amount the present value of the annuity. It will then be expected that the amount that they would be receiving would be much lesser than the amount in the future.
Real estate investors also use the present value of annuity calculator. They frequently use it in buying and selling mortgages. When a mortgage is bought, they use the present value annuity calculator to calculate how much to pay for the mortgage.
On the other hand, if you would like have enough money in a retirement account so that you can withdraw $2,000 per month for fifteen years, and your money earns a 5% conservative rate annually, present value calculations will tell you that you will need to have $379,365.73 in your retirement fund on the day you retire.
How To Use The Present Value Of Annuity Calculator
Present value calculations involve the compounding of interest, which means the interest of your money earns an interest. In short, it makes the calculation a little more complicated if you use an excel spreadsheet when calculating the present annuity value. Our present value annuity calculator will make the calculation easier for you. Just like any financial calculators, just input the four variables necessary for the calculation – payment amount, interest rate, number of years and the frequency of payment. To get the present value, click the “calculate the present value annuity” button.
Present Value Annuity Terms And Definitions
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