PRESENT VALUE OF ANNUITY AND FUTURE VALUE OF ANNUI

PRESENT VALUE OF ANNUITY AND FUTURE VALUE OF ANNUITY

ANNUITY

An annuity is a monetary speculation or investment that produces customary installments of payments for a set time frame period. In current times, an annuity is most frequently bought through an insurance agency or a monetary or financial services organisation.

This kind of speculation is regularly utilized by those getting ready for retirement or for a time of arranged unemployment. Contingent upon the financial backer’s decisions, an annuity might create either fixed or variable returns.

Whenever one invests in an annuity, the insurance agency takes a singular amount of cash direct and contributes it, subtracting the expenses it charges. The financial backer, consequently, will get a concurred amount of cash at standard spans throughout some undefined time frame.

PRESENT VALUE OF ANNUITY:

The present value of an annuity is the current value of all the income that will be generated by that investment in the future. In more practical terms, it is the amount of money that would need to be invested today to generate a specific income down the road.

The interest rate you can’t earn until later is called the present value discount rate. You plug this into the present value calculation on your spreadsheet or calculator, along with the amount of the periodic payment and the number of periods. The higher the discount rate, the smaller the present value of the annuity.

FUTURE VALUE OF ANNUITY:

The future worth or future value of an annuity addresses the aggregate sum of cash that will be accumulated by making reliable speculations or investments over a set period, with compound interest.Future Value is the amount of money that will grow over a period of time with simple or compounded interest. It is one of the most important concepts of finance and it is based on the time value of money. Investors use this method to know what will be the future value of their investment after a certain period of time calculates based on the assumed growth rate. So future value basically tells us how much money you will get in any sort of investment in the coming future.

Difference between Present Value of Annuity and Future Value of Annuity:

While calculating present value, inflation is taken into account, but while calculating future value, inflation is not considered.
Present value involves both discounted rate and interest rate whereas future value involves only interest rate.
Present value helps investors whether to accept/invest or reject the proposal whereas future value gives investors to estimate how much he will gain based on the interest rate.
The process of finding present value is called as discounted whereas the process of finding future is called as capitalization.
In present value, future value is given whereas in case of future value present value is already specified.
It is the current value of an asset or investment at the starting of a particular time period. Future value is the value of the asset or investment at the end of a particular time period.