 |
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...
Your annuities financial planning advisor will be
happy to help
you.
Get
an annuity quote.
"You'll be glad
you did the right thing."
Return to
Annuity Value
Return
to Annuities
Financial Planning
|
|
