Present Value Annuity

Present Value Annuity

Annuities are a series of equal payments or receipts that occur at even spaced intervals. There are two types of annuities, one is ordinary annuity: a payment which is received or paid during the end of a period is called ordinary annuity and the other is which occurs during the beginning of a year and is called annuity due.

Present Value of an Ordinary Annuity is the value of a stream of expected or promised future payments that have been discounted to a single equivalent value today. Its important for comparing two separate cash flows that differ in some way.

The formula is
PVoa = PMT[(1-(1/(1+i)n))/i], where PVoa = Present Value of an ordinary annuity

PMT = Amount of each payment, i = Discount Rate Per Period, n = number of Periods

 

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