The sum of the PVs calculated would be the present value of the entire stream. Let us assume that we have three future earnings of $5,000, $5,500, and $8,750 in the years 2008, 2009, 2010.

Something to keep in mind when determining an annuity’s present value is a concept called “time value of money.” With this concept, a sum of money is worth more now than in the future.

The formula for perpetual annuities takes a simpler form: Present Value = Payments / Interest Rate In the previous example, an infinite number of payments with a 2.4 percent inflation rate produce ...

So, if the initial investment is $1,000, and the present values in the first, second and final year are $952.38, $907.03 and $863.84, the net present value is equal to $1,723.25.

William R. Bryan, Charles M. Linke, Estimating Present Value of Future Earnings: Experience with Dedicated Portfolios, The Journal of Risk and Insurance, Vol. 55, No ...