The present value of an annuity is the current worth of a series of future equal payments, discounted at a given rate. Used to value pension streams, lease obligations, lottery winnings, and structured settlements.
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Pro Tip
To quickly check: multiply your monthly payment by the annuity factor for your rate and term. For a 6% annual rate over 20 years, the factor is about 139 — so $1,000/month has a PV of ~$139,000.
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Did You Know?
When lottery winners choose a "lump sum" instead of the 30-year annuity, they typically receive about 60% of the advertised jackpot — the PV of 30 annual payments discounted at ~3–4%. The difference is the time value of money.
References
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