Write a short note on Present Value of Annuity.

Present Value of an Annuity The present value of an annuity is the current value of future payments from an annuity, given a specified rate of return, or discount rate. The higher the discount rate, the lower the present value of an annuity. Key points: The present value of an annuity refers to how much money would be needed today to fund a series of future annuity payments. A sum of money received today is worth more than the same sum at a future date because of time value of money. Present value calculation can be used to determine whether more money will be received by taking a lumpsum payout now or an annuity spread out over a number of years. The formula to compute Present Value of an Annuity is as under: Present Value of an annuity (P) = PMT × [1 - (1/(1+r) n )] / r Where: PMT = Monetary value of each annuity payment r = Interest rate (also known as discount rate) n = Number of periods in which payments will be made