Calculate the present value of periodic payments (annuities) | Free template
Present value calculation of periodic payments is a free template that can be used to calculate the present value of future payments that are made in equal amounts per period and / or a payment made on one occasion.
Periodic payments are payments received or paid in equal amounts per period, and such payments are called annuities. The nominal value of future period payments are usually always higher than the present value of future period payments as a present value calculation takes the time value of money into account.
The time value of money means that 100 USD in the wallet today is worth more than 100 USD paid three years later, that´s because you can gain interest on the 100 USD that you have in your wallet now for 3 years and thus have more than 100 USD in 3 years. In a present value calculation is the time value of money accounted for by discounting future payments with a discount rate.
The discount rate used to calculate the present value should generally be a simple annual rate and shall correspond to the best interest rate (yield) that you can receive from an alternative investment with the same risk and maturity. Risk is the uncertainty of future payments and you can account for the risk by adjusting the risk-free interest rate with a risk premium.
The risk-free rate is assumed to be the interest rate on treasury bills and government bonds and by studying the interest rate on such instruments with different maturities can you get an idea of the risk free rate. A risk premium is the extra interest rate that an investor requires to compensate for the risk in future payments.
You can use this template to calculate the present value of future periodic payments and a final payment or to calculate the present value of a single payment. The discount rate is expressed as an annual percentage rate and the annual interest rate divided by the number of periods per year can be used to discount periodic payments.
01-01-2015 | Created by All-templates.biz
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