Annuity Formula — Regular Payments
An annuity is a series of equal payments at regular intervals. EMIs, SIPs, pension payments, and insurance premiums are all annuities.
Present Value of Annuity
PV = PMT × [(1 - (1+r)^(-n)) / r]
Where:
- PV = Present value of all future payments
- PMT = Regular payment amount
- r = Interest rate per period
- n = Number of payment periods
Step-by-Step:
- 1
Identify payment details
Amount, frequency, duration, and interest rate.
- 2
Match rate to period
Monthly payments → use monthly rate (annual/12).
- 3
Apply formula
Calculate PV factor, then multiply by PMT.
Worked Examples:
Pension valuation
PMT: ₹50,000/monthRate: 7% annualYears: 20
Result: PV = ₹63.5L
Monthly rate = 0.583%. n=240. PV factor = 131.1. PV = 50,000 × 131.1 = ₹65.5L. A ₹50K/month pension for 20 years is worth ~₹65L today.