Present Value of Annuity Formula

Formula

PV = Pmt x (1 - 1 / (1 + i)n) / i
Variables used in the annuity formula
PV = Present Value
Pmt = Periodic payment
i = Discount rate
n = Number of periods

Use

The present value of annuity formula shows the value today of series of regular payments. The payments are made at the end of each period for n periods, and a discount rate i is applied.

The annuity calculation formula discounts the value of each payment back to its value at the start of period 1 (present value).

Excel Function

The Excel PV function can be used instead of the present value of annuity formula, and has the syntax shown below.

PV(i, n, pmt, FV, type)

*The FV and type arguments are not used when using the Excel present value of an annuity function.

Present Value of Annuity Formula Example

If a payment of 5,000 is received at the end of each period for 10 periods, and the discount rate is 4%, then the value of the payments today is given by the present value of annuity formula as follows:

PV = Pmt x (1 - 1 / (1 + i)n) / i
PV = 5,000 x (1 - 1 / (1 + 4%)10) / 4%
PV = 40,554.48

The same answer can be obtained using the Excel PV function as follows:

PV = PV(i, n, pmt)
PV = PV(4%,10,-5000)
PV = 40,554.48

The present value of annuity formula is one of many annuity formulas used in time value of money calculations, discover another at the link below.

Present Value of Annuity Formula November 6th, 2016Team

You May Also Like


Related pages


present value of an annuity due of 1 tableinventory sale journal entrypayback method calculatorchange in accounting estimate depreciationamortization on intangible assetstime value of money tables present valuecalculating the effective annual ratecash flow to creditors formulapayroll tax expense journal entryexcel accounts receivable templateexamples of unearned revenueaccounting quizzes with answersperpetual and periodic inventory systems examplessample petty casheffective interest method of amortization calculatorformula for discount rate in excelobjectivity concept accountingunrealized gain loss income statementpresent value of growing annuityaccounts receivable vs accounts payablebank reconciliation exercise6 steps in accounting cyclesales ledger control account exampledebits & creditsexample of cash accountingaccrual accounting examplesexcel templates for bookkeepingjurnal account payablebad debt expense entriesdeferred tax liability in cash flow statementaccrual journal entriesdefinition of sundry creditorscontrollable contributionhow to calculate double declining balanceshipping method fobperpetual journal entriesfv calculator annuitydefine deferred tax assetamortization journal entryaccounting clerk test questions answerscapital lease calculatorexamples of prepaid expensesbad debt journal entryasset liability equationirr function in exceldebit and credit entries in accountshow to calculate stock turnover daysexpanded accounting equationaccounting spreadsheet templates for small businesshow to journalize transactions in accountingsingle entry bookkeeping definitionmanufacturing overhead cost formulaexamples of income statementsbookkeeping website templatesmanufacturing overhead journal entryexpenses template small businessstraight line depreciation examplesfactoring trade receivablesaccrued revenue adjusting entrybank reconciliation statement formatdiscounted cash flow formula in excelirr internal rate of return formulawhat is outstanding chequessample of bank reconciliation statementhow to calculate inventory holding periodinvestment in preferred stock on balance sheethow to calculate the quick ratioprofitability ratios definitionmargin versus mark uploan repayment excel formulathe formula for the labor price variance is