What exactly is the value of an annuity? The value of an annuity relates to the difference between the initial purchase price of the annuity and the selling price at maturity. The annuitant receives payments in lump sum or from some specified distribution schedule over a specified period of time.

What is the Present Value of an Annuity? The present value of the annuity depends on various factors. These include the amount that you are paying per month, number of years you are taking the payments, discount rates that are applied to the deferred payments, and the remaining amount of time until the maturity date. In general, the longer you take the payments, the higher the value of your annuity over the time period. However, these assumptions can be affected by certain unknown factors that can significantly affect the future prices of annuities.

How is the Present Value calculated? When determining the future prices of payments, it is important to first determine the present values of your future payments made during the period of time until your death. This includes both the immediate and future income from investments. In this way, you will have a clear picture of how much your estate is worth after your death and can easily calculate the premiums on the insurance policies that you are planning to purchase. This also allows you to establish the maximum amount that you can receive upon your death.

How are the Present Values of Annuities Calculated using Fixed Payments? Fixed payment annuities are usually purchased with less principal than the initial purchase price. When purchasing fixed payments annuities, the initial purchase price is usually the same as the current market value. Thus, calculating the future value of an annuity using the present value can be done using the following steps.

First, you need to determine the present value using the Annual Adjustment factor or APR. The APR is determined by adding the present value and the fixed payment for each year of annuity payments. You should note that this method only works for those who have guaranteed annuity coverage in five years or more before they die. However, this is an easy way for people who are still young and are still having their early retirement years.

Second, you can calculate the present value using the FV for the total interest paid over the period of time. The FV for the total interest paid over five years is the annual average of the actual principal paid over the period of time. The FV can be used as a good way of calculating the present value, but the calculation of the FV also involves the use of some variables. These variables can be the minimum return rate on the investment, if there is one, as well as the initial investment amount.