Present Value Of An Annuity
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Definition of 'Present Value Of An Annuity'
The current value of a set of cash flows in the future, given a specified rate of return or discount rate. The future cash flows of the annuity are discounted at the discount rate, and the higher the discount rate, the lower the present value of the annuity.
C = Cash flow per period
i = Interest rate
n = Number of payments
This calculates the present value of an ordinary annuity. To calculate the present value of an annuity due, multiply the result by (1+i). (The payments start at time zero instead of one period into the future.)
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Investopedia explains 'Present Value Of An Annuity'
The essence of this concept is that receiving money now is worth more than receiving the same amount in the future. By the same logic, receiving $5,000 today is worth more than getting $1,000 per year for five years. This is because if you got the lump sum today, you could invest it and receive an additional return.
Using this example, and assuming a discount rate of 6%, the present value of an annuity that pays $1,000 per year for five years is $4,212 (1,000*[1-(1+0.06)-5/0.06]= 4,212). This means that if you could get a return on your invested funds of 6% per year, receiving $4,212 today would have the same value to you as receiving $1,000 per year for five years.
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Search results for 'Present Value Of An Annuity'
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http://www.investopedia.com/articles/03/101503.asp
... Of course, we can use a formula shortcut to calculate the present value of an annuity
due: Therefore, ... Check out our Present Value Annuity Due Calculator. ...
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http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-npv-irr.asp
... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... 11.10 Payback
Period; 11.11 Net Present Value (NPV) and the Internal Rate of Return (IRR); ...
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http://www.investopedia.com/exam-guide/series-7/packaged-securities/value-variable-annuity.asp
Investopedia's Series 7 Online Study Guide. Using present value to determine
the value of variable annuity. Sign In• Register• Free ...
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http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/time-value-money-calculations.asp
... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... 11.10 Payback
Period; 11.11 Net Present Value (NPV) and the Internal Rate of Return (IRR); ...
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http://www.investopedia.com/articles/retirement/10/rules-converting-ira-annuity-to-roth.asp
... The net present value of the payout from an income rider is usually added to the
value of the ... in is actuarially determined by the annuity carrier and ...
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http://www.investopedia.com/university/advancedbond/advancedbond2.asp
... Because of this, the present value of annuity formula is unnecessary. You simply
calculate the present value of the par value at maturity. ...
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http://www.investopedia.com/articles/retirement/07/annuity-benefits-fine-print.asp
... However, in most cases, annuity withdrawals in the early years of contract ownership ...
On a present value basis, taking into account the time value of money, a ...
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http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/time-value-money-applications-calculations.asp
... 2.6 Net Present Value and the Internal Rate of Return; 2.7 Money Vs. ... 11.10 Payback
Period; 11.11 Net Present Value (NPV) and the Internal Rate of Return (IRR); ...
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http://www.investopedia.com/ask/answers/09/annuity-insurance-company-financial-problems.asp
... First off, if the annuity is a variable annuity, the present value of the separate
account (investment portion) would be covered up to $500,000 under ...
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http://www.investopedia.com/articles/05/inflationprotectannuity.asp
... The present value of annuity payments from IPAs tends to be less than the
present value from regular immediate annuities. Pricing ...
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