# Present Value of an Annuity: Formula and Example.

. Present Value of an Annuity: Meaning, Formula, and Example.

The original title is a complete sentence, while the rephrased title is not. The original title also states what the article will be about (present value of an annuity), while the rephrased title does not.

Which of the following is the formula for present value? The present value of an annuity is the present value of a stream of equal payments. The payments can be of any kind, but are typically periodic payments of interest and principal on a loan, or periodic deposits to or withdrawals from an account. The present value is the sum of the present values of each payment in the stream.

The present value of a stream of payments is the present value of the first payment plus the present value of the second payment, plus the present value of the third payment, and so on. The present value of each payment is the payment divided by the discount factor. The discount factor is a number that depends on the interest rate and the length of time until the first payment is made.

For example, suppose you have an annuity that pays \$100 per year for 10 years, and the interest rate is 5% per year. The present value of the annuity is the present value of the first payment (\$100), plus the present value of the second payment (\$100), plus the present value of the third payment (\$100), and so on.

To calculate the present value of each payment, we need to know the discount factor. The discount factor is the present value of \$1 divided by the present value of \$1 plus the interest rate. In this example, the discount factor is 0.9524 (i.e., 1/1.05).

The present value of the first payment is \$100/0.9524 = \$105.24.

The present value of the second payment is \$100/0.9049 = \$110.53.

The present value of the third payment is \$100/0.8598 = \$116.00.

And so on.

The present value of the annuity is the sum of the present values of each payment:

\$105.24 + \$110.53 + \$116.00 + ... What is the formula for calculating present value interest? The present value interest formula is:

PV = PMT * ((1 - (1 + r)^-n)/r)

where:

PV = present value
PMT = periodic payment
r = interest rate
n = number of periods

#### What is the present value of the simple annuity of ₱ 5000.

00 payable semi annually for 10 years if money is worth 6% compounded semi annually? The present value of the simple annuity of ₱ 5000.00 payable semi annually for 10 years if money is worth 6% compounded semi annually can be calculated using the formula:

PV = A * ((1 - (1 / (1 + i)^n)) / i)

where:
PV = present value
A = annuity payment
i = interest rate per period
n = number of periods

Plugging in the known values, we get:

PV = ₱ 5000.00 * ((1 - (1 / (1 + 0.06)^20)) / 0.06)

PV = ₱ 5000.00 * ((1 - (1 / 1.06^20)) / 0.06)

PV = ₱ 5000.00 * ((1 - (0.9434852627)) / 0.06)

PV = ₱ 5000.00 * (0.0565147373 / 0.06)

PV = ₱ 5000.00 * 0.9608012288

PV = ₱ 4804.01

Therefore, the present value of the simple annuity of ₱ 5000.00 payable semi annually for 10 years if money is worth 6% compounded semi annually is ₱ 4804.01.

### What is Net Present Value example?

The Net Present Value (NPV) is the value of all future cash flows from an investment - including the initial investment cost - discounted at the required rate of return. In other words, it is the present value of an investment's expected future cash flows.

For example, let's say an investor is considering investing in a new factory. The factory is expected to cost \$1 million today, and it is expected to generate \$200,000 in after-tax cash flow each year for the next 10 years. The required rate of return on this investment is 10%.

The NPV of this investment would be the present value of all expected future cash flows, discounted at 10%. In this case, the present value of the cash flows would be:

\$200,000 / (1 + 10%) + \$200,000 / (1 + 10%)^2 + ... + \$200,000 / (1 + 10%)^10 = \$1,135,664

This means that the NPV of the investment is \$135,664. This means that, if the investor could find another investment with the same expected return, they would be better off investing in the new factory. What is the example of simple annuity? A simple annuity is an annuity where the payments are made at fixed intervals and the interest is not compounded. An example of a simple annuity would be a monthly payment of \$100 for 10 years, where the interest rate is 10% per year.