How to Calculate the Present Value of an Annuity

In this video, I show how to calculate the present value of an annuity. In addition to converting the series of payments via the traditional discounting method, I'll show how to solve the problem utilizing a handy equation.

[kylelane]

Thanks for this! I learn much better in videos, rather than just reading :)

[cadettipk]

I've seen 2 other videos on this concept and this one actually made it stick. I'm definitely going to ace this part of my test now. Thanks!

[Alanisbusinessacademy]

Absolutely. You would have to change the number of periods (n) and your interest rate (i). For example, if you were discounting future cash flows for 3 years, but in quarters, you would multiple that figure by 4 to get 12 periods. You would also modify your interest rate, lets say 8 percent annually, by dividing it the number of quarters in a year (4) to get 2 percent per quarter. Great question. Hope this helps.

[NickD]

Been learning Quantitative Measures chapter in my Investment Management Certificate. This helped alot! very easy to follow and much preferred to the book description. thanks!!! (guy who hasn't touched this sort of math since leaving school 7 years ago)

[jcuempire]

I am glad I found this! I was agonizing over this concept. You explained it perfectly. Thanks very much!

[preciousntobeng]

Thank you for step by step calculation on the PV of interest

[Moe]

Thank you very much!! I finally understand what I was doing wrong.

[ajamesmcdermott]

Thank you Alanis! this has been a great help.

[smithjo]

Thank You so much Matt for the rapid response. Just so I could understand, to determine real cash flows and real discount rates, do I reduce these items by the inflation rate and based on your previous response, am I merely subtracting the inflation rate from the cash-flow?

[eshrn]

i don't get this, I thought that n should be in negative.

[hestycho]

Thank you so much! you teach me better than my teacher haha

[smithjo]

No Problem Matt. Thank You. This is a bit confusing. Is there a way for me to better understand this? So in summary, the interest rate has to be reduced by inflation? Thank You again Matt. This helps so

[jimmynwakalor]

automatically my new favorite channel 
thanks a lot

[smithjo]

Thank You for these instructions. I have a question, How do you add the calculation of inflation to this equation?

[smithjo]

Thank You Matt. I am in a MBA program and this is my 2nd to last class to complete the program. Next is econ. Ugh!. So I will be in contact with you in the future i am sure.... Are there instructional classes that I could sign up for that you offer? You are very good.

[mitchellhenning]

How would you calculate a PVA with more than one interest rate at a certain point in the future. For example for a 12 year annuity
at 2900 each month and for the first 8 years the interest rate is 8% compounded monthly, but after the first 8 years the interest rate switches to 6% compunded monthly

[lizjk]

What happens to the present value of an annuity when the interest is compounded more frequently? Could you share an example to visualize it please?
I can see from the timeline, the amount declines every year. 
My book says the value declines, but I'm getting confused because when I think of interest compounded more frequently I think of how the interest amount increases. 

Thanks

[joshuawrightwayjay]

Greeting got a question for you. Whenever I calculate 1.07 to the third power and divide by one i keep coming up with 1.225043 instead of .8162979. Can you help me understand why that is? Please and thank you.

[DrCashcow]

are the annuities in this video and the one about future value annuity take into account interest or inflation or both, because i am confused on this

[joshuarobertdaniels]

How do I calculate, at the end of my payments, how much I can withdraw over a given period of time, while still collecting the original interest rate? The account balance at the end being zero.