Present Value of Annuity Immediate

The present value of an annuity immediate is the current worth of a series of equal payments made or received at regular intervals over a specified period of time. It is a financial concept that is useful in evaluating the value of investments, pensions, and insurance products.

Formula for Calculating Present Value of Annuity Immediate

The formula for calculating the present value of an annuity immediate is:

PV = P * [(1 - (1 + r)^-n) / r]

Where PV is the present value, P is the payment, r is the interest rate, and n is the number of payments.

Example

For example, if you were to receive $1,000 per year for the next 10 years, and the interest rate is 5%, the present value of the annuity immediate would be:

PV = $1,000 * [(1 - (1 + 0.05)^-10) / 0.05]
PV = $7,722.91

This means that the current value of receiving $1,000 per year for the next 10 years, assuming an interest rate of 5%, is $7,722.91.

Conclusion

In conclusion, the present value of an annuity immediate is the current worth of a series of equal payments made or received at regular intervals over a specified period of time. It is calculated using a formula that takes into account the payment amount, interest rate, and number of payments.