## Present Value Annuity

The present value of an annuity is less

than the future value. Thus it is important to know what an annuity is worth in today's dollars.

Interest and inflation are the factors that cause the money today, to be worth less tomorrow.

You can also determine what a loan or lease will cost you as well.

Let's look at some examples.

### Example 1

Let's say that you were paying \$10,000 a year into a 10 year annuity. Let's pick an 8% interest rate, fixed.

Merely go to our present value annuity table. The number in 10 periods (10 years) at 8% (interest) = 6.7101

\$10,000 x 6.7101 = \$67,101. That is what your annuity is worth today. However, in actuality, in the next 10 years you put in \$100,000 (not to mention the interest).

Don't fret. Use the lower right calculator here. Your \$10,000 at 8% interest for 10 years gives you \$144,865.62 at the end of the term.

Not bad. But remember, this is just an example of how to calculate it.

### Example 2

Let's try a different scenario: Let's say you have \$10,000 that you can use to pay off on a loan. How much can you borrow for 6 years at 10%?

Go to the present value annuity table and you will find 4.3553 at 6 periods and 10%.

\$10,000 x 4.3553 = \$43,553. That is how much you can borrow.

Note: This number can change depending on how the interest is compounded.

### Example 3

One more scenario: Let's say you made a deal to sell your car for \$15,000 for the next 3 years. And let's say that the going interest rate is 6%. What is the value of the deal you were offered?

Go the present value annuity table and you will find 2.6730 at 3 periods and 6%.

\$15,000 x 2.6730 = \$40,095. That is the value of your deal.

There are other uses for this as well...

If you are looking for an annuity for your financial planning, or want further options, ask us...