Original Size  

48 Comments on “Present Value Of An Annuity Calculator”

financial online calculator Join the conversation. Tell me what you think.
  • Just a few thoughts –

    Previously I mentioned that the verbal predicted FMV always matched, within a penny & sometimes exact, the letter when it arrived about 11 months later.

    One time the insurance company said it took a while to calculate this because they had to compute it month by month. Maybe this accounts for their values being different than the calculator ones. But I can’t imagine them doing this at the year end for all their customers. They wouldn’t give me the formula so who knows how they’re doing it.

    That being said, 2017 was different. The verbal was $113,463.26 and the letter was $113,470.70. That is way more than a penny difference. What’s interesting is that the verbal is only 46 cents different than your calculator’s value of $113,463.72. It’s as if they used your calculator but with only 5 decimal place rate accuracy. But then what did they use for the year end? For my purposes all the values are close enough.

    Do you know the inner workings of your calculator & how it uses dates? Or how any formula would do that?

    • Do I know the inner workings? I should, I programmed the calculators on this site, but alas, this site has been a 4 year project (even as an upgrade from an older site) and details are fuzzy. 🙂 That’s one of the reasons why I don’t discuss the equations themselves. Another reason is, such a discussion, by necessity, gets into the weeds too much and I only have so much time to answer questions.

      That said, this calculator, as I recall, calculates PV for "X" periods, adjusts for any fractional period and then rounds once.

      I do have another idea about why there are differences. Your insurance company telling you that they compute "month by month" made me realize that they may have a schedule of when the distributions are due and they may take true due dates into account. This could come into play if a due date falls on a Saturday or Sunday, they may pay on Friday and adjust the FMV accordingly. We’ve already seen how one day difference in the dates causes the FMV to change by a few dollars.

      See what I mean by getting into the weeds?

      If this is of interest to you, I do have a calculator that will let users calculate the PV month by month and it will round after each calculation (because it lets the user, if they want to, to set the date each annuity payment is due). Please see the Ultimate Financial Calculator. If you check it out, scroll down the page and there are a number of tutorials. #20 deals specifically with PV. (All users should read #1 to get started.)

  • Does anyone know the exact formula this calculator uses?

    I am trying to calculate the present value of an annuity using the formula c(1-(1+r)^-n)/r formula, but the numbers I am getting are absurd

    This calculator provides the exact answer, but the formula, when I do it by hand, does not. Is my bedmas that bad or is there a tweak to the formula to get the results that this calculator does.

    • The discount rate is the rate used to find the present value.

      The more important question perhaps is "What rate should I use for the discount rate?&quot

      And that depends. If you want to know the present value of a future cash flow that would be derived from investing, then you want to use a rate you think you can earn if you were investing the money.

      If you were to borrow the money then you should use the interest rate you would have to pay on a loan.

      Does this help?

Comments, suggestions & questions welcomed...