To calculate the present value of an annuity, you will need to know the following information:
The amount of each payment (P): This is the amount that will be paid at the end of each period.
The number of periods (n): This is the total number of payments that will be made over the life of the annuity.
The interest rate (r): This is the rate at which the annuity will earn interest.
The present value factor (PVF): This is a factor that represents the present value of a series of future payments, based on the interest rate and the number of periods.
To calculate the present value of the annuity, you will use the following formula:
PV = P * PVF
Where PV is the present value of the annuity, P is the payment amount, and PVF is the present value factor.
For example, if you have an annuity with payments of $100 per period, a total of 10 periods, and an interest rate of 5%, the present value would be:
PV = $100 * (1 – (1 / (1 + 0.05)^10)) / 0.05
= $943.74
This means that the present value of the annuity is $943.74.
To calculate the future value of an annuity, you will use a similar formula, but with a different factor called the future value factor (FVF). The formula for calculating the future value of an annuity is:
FV = P * FVF
Where FV is the future value of the annuity, P is the payment amount, and FVF is the future value factor.
