Few people investing in annuities actually understand how the present value annuity calculator works. The present value annuity calculator will help investors understand their annuity investments even if they do not fully understand annuities or the concept of present value.
First of all, let's define what present value is. Present value, as used in the present value annuity calculator is the value on a given date of a future annuity payment or series of future annuity payments, discounted back to reflect the time value of money and other factors such as investment risk.
The present value concept is useful, not only for the present value annuity calculator but for many other financial calculations. Many businesses and financial institutions make use of present value calculators. In real estate investing, investors rely heavily on present value calculators to help them invest in real estate.
Investors can either use the present value annuity calculator online whenever they want to calculate annuity payments or they can download the present value annuity calculator application and install it as a desktop application for use whenever they want even when they are not connected to the Internet. Each present value annuity calculator can have different interfaces and you have to learn about the interface of the present value annuity calculator you choose before you use it.
The discount factor is used in the present value annuity calculator to calculate present value. The discount factor is expressed as the reciprocal of one plus a rate of return. If you know the discount factor, then the present value is simply the discount factor multiplied by expected payoff in one year.
The rate of return is also an important factor used in the present value annuity calculator. The rate of return is the reward that investors demand for accepting delayed payment. The rate of return is used in calculating the discount factor.
Sometimes known as the "opportunity cost," the rate of return is an important factor in the calculation of the present value. Sometimes it is even the result that you are looking for, because it indicates exactly what the security that you could invest in will yield.
The more common use of the present value annuity calculator is to calculate the net present value rather than just the present value. When calculating the net present value, the present value annuity calculator uses the required investment in its calculation.
Although it is hard to grasp the concept of present value, it is not hard to use the present value annuity calculator. The present value annuity calculator can even display results in simple to understand charts and graphs. The present value annuity calculator is very useful when you try to understand how annuities work.
