# Present Value of an Ordinary Annuity Calculator

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This calculator computes the present value of a series of fixed payments occurring at the end of each period. The basic principle is that the same amount of money is more valuable today than it will be in the future because today's dollars can be invested to make more money.

## Example

An individual won the lottery. Should he take the one-time cash option of \$12 million or receive 20 yearly payments of \$1 million each?

Field Input
Annuity payment \$1,000,000
Payments per year 1
Years of annuity 20
Annual discount rate 5.00%

In this example, the present value of this annuity is \$12,462,210.34.

Notes

• The 5.00% annual discount rate reflects the rate of return expected on investments.
• The discount rate is either a rate of return that could be earned on today's dollars or an inflation rate to compare the purchasing power of today's dollars with future dollars.