Annuity
An annuity is a finite stream of cash flows of identical magnitude and equal spacing in time.
E.g., Savings, vehicle, home mortgage, auto lease, bond payments
PV of Annuity =
where the term multiplied to CF is called the Annuity Factor.
This formula assumes that the first cash flow occurs at t=1. If the first cash flow occurs today i.e. at t=0, then we must add CF to the above formula.
Simple Example
Here, CF=100, T=20, R=0.05
So, PV = = $1246.22
Sidenote: A mortgage is an annuity where the borrowed amount is the present value of the annuity
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