1. What is the Annuity Factor?

The annuity factor is a multiplier used to calculate the present value of a series of future cash flows (an annuity). It represents the present value of $1 per period for n periods at a given interest rate.

2. How Does the Calculator Work?

The calculator uses the annuity factor formula:

Where:

• \( r \) — Interest rate per period (as decimal)
• \( n \) — Number of periods

Explanation: The formula discounts each future payment to its present value and sums them all together.

3. Importance of Annuity Factor

Details: The annuity factor is crucial in finance for valuing annuities, calculating loan payments, determining lease payments, and in pension calculations.

4. Using the Calculator

Tips: Enter the interest rate as a decimal (e.g., 5% = 0.05) and the number of periods. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ordinary annuity and annuity due?
A: Ordinary annuity assumes payments at the end of each period, while annuity due assumes payments at the beginning. This calculator computes ordinary annuity factors.

Q2: Can I use this for monthly payments?
A: Yes, as long as the interest rate matches the period (use monthly rate for monthly periods).

Q3: What happens when interest rate is zero?
A: The formula simplifies to n (number of periods) since there's no time value of money.

Q4: How is this related to present value calculations?
A: Present Value = Payment Amount × Annuity Factor.

Q5: What's the relationship with the perpetuity factor?
A: As n approaches infinity, the annuity factor approaches 1/r (perpetuity factor).