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Present Value of a Level Annuity

Blog by Andrew Reid | February 15th, 2021

Measuring the Time Value of Money is vital to any financial investment decision. Many professionals, both in and out of the real estate industry, use this calculation before jumping into a new venture. The use of the present value of a level annuity calculation helps professionals evaluate the potential value in an action, investment or other financial decision. The calculation also helps decide which action or investment is the most financially efficient use of resources when comparing multiple options. Below is a calculation for when solving for the present value of a level annuity. Basically, the overall calculation is a series of individual present value calculations of each payment rolled into one.

PV = ( PMT1 / (1 + r)1 ) + ( PMT2 / (1 + r)2 ) + … ( PMTT / (1 + r)T )