What is an example of an annuity?

For example, a lottery winner may opt to receive a series of payments over time instead of a single lump sum distribution. This can also be called an annuity. Two terms related to annuities are present value and future value. Here’s what you need to know. Present value of an annuity vs. future value of an annuity: What’s the difference?

How to calculate present value of an annuity?

Or you can use an annuity table. The information you’ll need to calculate present value of an annuity includes: Payment amount. Amount of money you envision getting paid by period (monthly, quarterly or annually). Interest rate. The interest rate per period. Number of time periods. The number of periods applied to the interest rate calculation.

How do you evaluate an annuity?

The two conditions that need to be met are constant payments and a fixed number of periods. For example, $500 to be paid at the end of each of the next five years is a 5-year annuity. If you would like to evaluate an annuity, there are two aspects to be considered: the present and future value of the annuity.