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Time Value of Money Table:Present Value of Annuity

Brian Krogol
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So here we have a very similar looking table except notice the title. It says present value of ordinary annuity of $1. Okay, so since this is ordinary annuity of $1, this is your table for annuities. Okay. So it's very easy to tell which tables for annuities because it's gonna say annuity in the title. Alright. But why does it say of $1? Well that's because this is what $1. If the annuity was just $1 this is what it would be worth. And that's why we multiply it by the annuity payment because it's usually not just $1 it's going to be some bigger amount of money. Okay. So in the same way we read we read this table the same way we're gonna go into our problem and we're gonna analyze what is our end notice? We've got ends going down again the number of periods and we've got interest rates are going across. Okay. So we're gonna have to analyze our problem to find the interest rate and the number of periods and then we would dive into this table to find what our present value factor is. That we're gonna multiply by. Okay. So now that you've seen the tables, one of the biggest tricks is knowing which table to use right? When you're dealing with an annuity, you wanna make sure you're using the annuity table when you're dealing with a lump sum which is just one amount of money, right? That's when you use the other table, the lump sum table above present value of $1. So it's the lump sum is just $1. Right here, we're talking about an annuity getting $1 for several periods and equal intervals. Alright, so I think the best way to learn this is with an example. So let's go back to our first page of the lesson and let's do an example related to this.