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Present Value (PV)
Total Future Payments
Calculation Principles & Formulas
Present Value of an Annuity (PV) is the current value of a series of future equal periodic payments. It accounts for the time value of money (money available today is worth more than the same amount in the future) and helps evaluate the fair value of annuities or installment plans.
[Formula]
Ordinary Annuity (End of Period):
PV = PMT × [(1 - (1 + r)^-n) / r]
Annuity Due (Beginning of Period):
PV_due = PV × (1 + r)
Where:
PMT = Periodic Payment Amount
r = Periodic Interest Rate (Annual Rate / Frequency)
n = Total Number of Periods (Years × Frequency)
Note: This calculation assumes the interest rate remains constant throughout the period and is compounded.
