Present Value of Annuity Formula
Present Value of Annuity = A/i * [1 - (1/(1 + i)n)]
1.PV = the value at time zero
2.A = Individual Payment in each period
3.i = the discount rate (or interest rate)
4.n = the number of periods
Present Value of Annuity Example
Greg owns a hotdog stand and he'd like to sell it for $4000. Bob offers him 4 annual payments of $1000 beginning at the end of this first year. What is this proposition, in today's dollars, currently worth if interest is at 6%?
This offer is presently worth: $3465.106.
Note that Bob offers $4000, but do not confuse his offer with what it is presently worth (its present value) given the time value of money.