﻿ Present Value of an Annuity of \$1 Per Period

# Present Value of an Annuity of \$1 Per Period

The Present Value of an Annuity of \$1 per period is the current value of a regular periodic payment to be received in the future.  The annuity is discounted to an equivalent current value by a discount rate based on the premise that a lump sum received sooner is more valuable than a periodic payment received later.

The Present Value of and Annuity of \$1 factor is generally column 4 of the compound interest table.  It may be labeled Present Value of and Annuity of \$1.

To calculate the present value of an ordinary annuity, multiply the amount of the annuity by the factor from the appropriate compound interest table.

Example:

Roger will receive \$10,000 per year for 5 years.  Assuming a discount rate of 7%, what is the current value of the annuity?

\$10,000 per year is the annuity to be received in the future.  Using the discount rate of 7% estimates the today's value of the annuity.

An Appraisal Application:

Roger owns a warehouse that he can rent for \$10,000 per year.  In 5 years the building and land will be worthless.  Assuming a discount rate of 6%, what is the value of the property now.

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