What Is an Annuity Table?
An annuity table is a tool for understanding the prevailing value of an annuity or other structured collection of expenses. This sort of device, used by accountants, actuaries, and other insurance plans staff, takes into account what quantity of money has been located into an annuity and the best way long it is been there to come to a decision what quantity of money might be as a result of an annuity buyer or annuitant.
Figuring the prevailing value of any longer term amount of an annuity can also be performed using a financial calculator or device built for this type of purpose.
Key Takeaways
- An annuity table is a tool used to come to a decision the prevailing value of an annuity.
- An annuity table calculates the prevailing value of an annuity using a system that applies a discount value to longer term expenses.
- An annuity table uses the cut price value and selection of duration for price to come up with an appropriate factor.
- The use of an annuity table, you are going to multiply the dollar amount of your regimen price by way of the given factor.
How an Annuity Table Works
An annuity table provides a component, consistent with time, and a discount value (interest rate) during which an annuity price can also be multiplied to come to a decision its supply value. As an example, an annuity table might be used to calculate the prevailing value of an annuity that paid $10,000 a one year for 15 years if the interest rate is expected to be 3%.
In line with the idea that that of the time value of money, receiving a lump sum price inside the supply is worth more than receiving the equivalent sum one day. As such, having $10,000 nowadays is very best than being given $1,000 in step with one year for the next 10 years given that sum might be invested and earn hobby over that decade. At the end of the 10-year duration, the $10,000 lump sum might be worth more than the sum of the annual expenses, although invested at the equivalent interest rate.
Annuity Table and the Supply Worth of an Annuity
Supply Worth of an Annuity Method
The system for the prevailing value of an atypical annuity, as opposed to an annuity due, is as follows:

get started{aligned}&text{P} =text{PMT}timesfrac{ 1 – (1 + r) ^ -n}{r}&textbf{where:}&text{P} = text{Supply value of an annuity flow into}&text{PMT} =text{Dollar amount of each annuity price}&r = text{Interest rate (incessantly known as the cut price value)}&n = text{Number of categories during which expenses may well be made}end{aligned} ​P=PMT×r1−(1+r)−n​where:P=Supply value of an annuity flow intoPMT=Dollar amount of each annuity pricer=Pastime value (moreover recognized as the discount value)​
Assume an individual has a chance to procure an annuity that may pay $50,000 in step with one year for the next 25 years, with a discount value of 6%, or a lump sum price of $650,000. He should come to a decision the additional rational selection. The use of the above system, the prevailing value of this annuity is:

get started{aligned}&text{PVA} = $50,000 cases frac{1 – (1 + 0.06) ^ -25}{0.06} = $639,168&textbf{where:}&text{PVA}=text{Supply value of annuity}end{aligned} ​PVA=$50,000×0.061−(1+0.06)−25​=$639,168where:​
Given this information, the annuity is worth $10,832 a lot much less on a time-adjusted basis, and the individual may have to make a choice the lump sum price over the annuity.
Realize, this system is for an atypical annuity where expenses are made at the end of the duration in question. Throughout the above example, each $50,000 price would occur at the end of the one year, each one year, for 25 years. With an annuity due, the expenses are made at first of the duration in question. To hunt out the value of an annuity due, simply multiply the above system by way of a component of (1 + r):

get started{aligned}&text{P} = text{PMT} timesleft(frac{1 – (1 + r) ^ -n}{r}correct) cases (1 + r)end{aligned} ​P=PMT×(r1−(1+r)−n​)×(1+r)​
If the above example of an annuity due, its value might be:

get started{aligned}&text{P}= $50,000&quad timesleft( frac{1 – (1 + 0.06) ^ -25}{0.06}correct)cases (1 + 0.06) = $677,518end{aligned} ​P=$50,000​
In this case, the individual may have to make a choice the annuity due, because of it is worth $27,518 more than the lump sum price.
Supply Worth of an Annuity Table
Rather than operating all through the system above, you should on the other hand use an annuity table. An annuity table simplifies the math by way of robotically supplying you with a component for the second a part of the system above. As an example, the prevailing value of an atypical annuity table would come up with one amount (referred to as a component) that is pre-calculated for the (1 – (1 + r) ^ – n) / r) portion of the system.
The problem is determined by way of the interest rate (r inside the system) and the selection of categories during which expenses may well be made (n inside the system). In an annuity table, the selection of categories is generally depicted down the left column. The interest rate is generally depicted round essentially the most good row. Simply make a choice the correct interest rate and selection of categories to hunt out your factor inside the intersecting cellular. That factor is then multiplied by way of the dollar amount of the annuity price to succeed in at this time value of the atypical annuity.
Underneath is an example of a present value of an atypical annuity table:
| n | 1% | 2% | 3% | 4% | 5% | 6% |
| 1 | 0.9901 | 0.9804 | 0.9709 | 0.9615 | 0.9524 | 0.9434 |
| 2 | 1.9704 | 1.9416 | 1.9135 | 1.8861 | 1.8594 | 1.8334 |
| 3 | 2.9410 | 2.8839 | 2.8286 | 2.7751 | 2.7233 | 2.6730 |
| 4 | 3.9020 | 3.8077 | 3.7171 | 3.6299 | 3.5460 | 3.4651 |
| 5 | 4.8534 | 4.7135 | 4.5797 | 4.4518 | 4.3295 | 4.2124 |
| 10 | 9.4713 | 8.9826 | 8.5302 | 8.1109 | 7.7217 | 7.3601 |
| 15 | 13.8651 | 12.8493 | 11.9380 | 11.1184 | 10.3797 | 9.7123 |
| 20 | 18.0456 | 16.3514 | 14.8775 | 13.5903 | 12.4622 | 11.4699 |
| 25 | 22.0232 | 19.5235 | 17.4132 | 15.6221 | 14.0939 | 12.7834 |
If we take the example above with a 6% interest rate and a 25 one year duration, you are going to to search out the problem = 12.7834. Must you multiply this 12.7834 factor from the annuity table by way of the $50,000 price amount, you are going to get $639,170, just about the equivalent since the $639,168 end result inside the system highlighted inside the previous segment. The slight difference inside the figures shows the fact that the 12,7834 amount inside the annuity table is rounded.
There is a separate table for the prevailing value of an annuity due, and it will give you the proper factor consistent with the second system.
What Is an Annuity Table Used For?
An annuity table is a tool used maximum usually by way of accounting, insurance plans or other financial execs to come to a decision the prevailing value of an annuity. It takes into account the amount of money that has been located inside the annuity and the best way long it’s been sitting there, so that you can make a decision the amount of money that are supposed to be paid out to an annuity buyer or annuitant.
What Is the Difference Between an Odd Annuity and an Annuity Due?
An atypical annuity generates expenses at the end of the annuity duration, while an annuity due is an annuity with the price expected or paid at the beginning of the fee duration.
Can a Lottery Winner Use an Annuity Table?
A lottery winner might use an annuity table to come to a decision whether or not or no longer it makes additional financial sense to take his lottery winnings as a lump-sum price nowadays or as a series of expenses over a couple of years. However, Lottery winnings are an abnormal form of an annuity. Additional generally, annuities are a type of investment used to provide other people with a gradual income in retirement.
