The value now of a level stream of income to be received each period for a finite number of periods. See Ordinary Annuity.
1
1 - ---
(1 + i)n
Present value of annuity = ----------
i
where i = interest rate
n = number of periods
Example: The present value of an annuity of $1.00 per year for 10 years, discounted at 12%, is $5.65. Selected present values of annuity factors for annual income of 1 are shown in Table 39.
Table 39 Present Value of Annuity
Discount rates
Life of the annuity
(years) 5% 10% 15% 20%
1 .952 .909 .870 .833
2 1.859 1.736 1.626 1.528
3 2.723 2.487 2.283 2.016
4 3.546 3.170 2.855 2.589
5 4.329 3.791 3.352 2.991
10 7.722 6.144 5.019 4.192
15 10.380 7.606 5.847 4.675
20 12.462 8.514 6.259 4.870
25 14.094 9.077 6.464 4.948
30 15.372 9.427 6.566 4.979
