Question

What is an annuity? How do you calculate its value?

please list a calculate form

Answer 1

An annuity is a series of equal payments over a period of time. The most simple form of annuity would be receiving a sum at the end of each year for a specific number of years.

For example if one receives 500 at the end of each year for 5 years, then it is considered as an annuity. For calculating the value we need to discount it with the dicounting rate. In this case if the discount rate is 10%, then the present value is given as:

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

PV = 500*(1 - 1.10^-5)/0.10 = 1,895.39