How to calculate the present value of an annuity?

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To calculate the present value of an annuity, you can use the following formula:

PV = PMT / r * (1 – (1 + r)-n)

  • PV is the present value of the annuity.
  • PMT is the periodic payment amount.
  • r is the periodic interest rate (in decimal form).
  • n is the total number of payments.

This formula assumes that payments are made at the end of each period, which is typical for an ordinary annuity. If payments are made at the beginning of each period, you adjust the formula by multiplying the result by (1+r), converting it to the formula for an annuity due.

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