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.

Or, turning that around, the “present” value of $1.10 one year out is $1.00. You probably wouldn’t want to make an investment that’s estimated to produce a negative NPV.

How an Annuity Table Works An annuity table provides a factor, based on time, and a discount rate (interest rate) by which an annuity payment can be multiplied to determine its present value. For ...

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 ...