Annuity Present Value Formula

Annuity Present Value Formula

Annuity present value is calculated for the investment decision. Annuity present value is the present value of future expected cash flows.

Present Value annuity = C x Annuity Factor

Where

Annuity Factor =1-(1+i)^-n

                          i

i=interest rate

n=number of periods

Example

50,000 for 5 Year

Cost of capital = 12%

Calculate annuity by short & long methods.

Solution

Annuity Factor

1-(1+i)^-n

     i

Where;

i=interest rate

n=number of periods

=1-(1+.12)^-5

       .12

=3.6047

PV of Annuity = 3.6047 x 50,000

180,238