Present Value Ordinary Annuity

The Present Value Ordinary Annuity calculator computes the amount of money accumulated if you invest a number of payments at regular payment intervals.

INSTRUCTIONS: Choose units and enter the following:

• (C) Periodic Cash amount each period.
• (r) Annual Interest Rate
• (n)  Compounding Periods

Present Value of Ordinary Annuity (PV): The calculator returns the value in U.S. dollars.  However, this can be automatically converted to compatible units via the pull-down menu.

The Math / Science

To receiving money now is generally worth more than receiving the same amount in the future, primarily because you can invest it now at a compounding rate. For example, to receive $12,000 today is worth more than receiving $1,000 each month for a year.  You can invest the $12,000 today at the same interest rate as you might invest each $1000 as the payments are received and the $12,000 today would earn more interest.  So, receiving $12,000 today is worth more at the end of the year than receiving 12 payments of $1000 across the year. 

This equation then tells you how much money today is equal to the money earned at a specified interest rate if it were received in monthly payments.

Usage

The Present Value of an Annuity can be used to compare the choice between getting a lump sum now and investing it at some fixed rate for a period versus getting a periodic payment at a different rate for the same period.

Example

If you receive $1,000 each month for a year at a fixed interest rate of 5%, the Present Value of those payments would be:

`PV_"Annuity"` = $1000 * [1  - (1 + 0.05)^12] / 0.05 = $11,681.22

This means receiving those 12 payments across the span of the year will be worth the same amount at the end of the year as receiving $8,863.25 today.

Annuity Calculators:

• Present Value (Ordinary Annuity)
• Present Value Annuity Due
• Present Value Perpetual Ordinary Annuity
• Present Value Perpetual Annuity Due