What are annuities
There is a series of equal cash flows. The annuity can be
calculated by applying the simply discount for each or alternatively by
applying annuity factor. The annuity factor may be found in annuity table and
applied on equal cash flows.
How the annuity is
calculated for future period
If annuity starts in a future period then annuity is
calculated at that point by applying annuity factor and then amount calculated
at future point is discounted to calculate present value. The annuity in future
is calculated one year before i.e. annuity start year six is calculated at year
and then discounted by five years.
How annuity is calculated
starting from current period
The annuity factor at year 0 is one (1) and this factor is
added with annuity factor for more years and then applied to calculate the
present value. For example the annuity start now for 2 years then it is
calculated ( 1+ 1.736 i.e. 10% for 2 years) = 2.736
