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Calculate Deferred Annuity Value

A deferred annuity is an annuity where payments do not begin until a period of deferral has passed. The period of deferral is the time between purchasing the annuity and when payments start. The present value of a deferred annuity can be calculated using the presented formula, which takes into account the annuity payment amount, interest rate, number of payment periods in a year, deferral period, and total payment periods. The example shows how to use the formula to calculate the present value of a $4,000 deferred annuity with a 10% annual interest rate, 12 payment periods per year, a 2 year deferral period, and payments over 24 years.

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Michael Gallardo
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144 views1 page

Calculate Deferred Annuity Value

A deferred annuity is an annuity where payments do not begin until a period of deferral has passed. The period of deferral is the time between purchasing the annuity and when payments start. The present value of a deferred annuity can be calculated using the presented formula, which takes into account the annuity payment amount, interest rate, number of payment periods in a year, deferral period, and total payment periods. The example shows how to use the formula to calculate the present value of a $4,000 deferred annuity with a 10% annual interest rate, 12 payment periods per year, a 2 year deferral period, and payments over 24 years.

Uploaded by

Michael Gallardo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Deferred Annuity- An annuity that does not begin until a given time interval has passed.

Period of Deferral- time between the purchase of an annuity and the start of the payments of the deferred
annuity.

*Present Value of Deferred Annuity


− ( k +n) −(k )
r r
P=R
[ ( )
1− 1+

r
m
m
][ ]−R
1− 1+ ( )
r
m
m

Example:
R = P4,000
r = 10% or 0.10
m = 12
k=2
n = 24

− ( k +n) −(k )
r r
P=R
[ ][ ]
( )
1− 1+

r
m
m
−R
1− 1+ ( )
r
m
m

− ( 2+24 ) −(2 )
0.10 0.10
P=4,000
[ ] [ ]
( ) ( )
1− 1+
12
0.10
12
1−( 1+0.00833 )−( 26)
−4,000

1−( 1+0.00833 )−(2)


1− 1+
12
0.10
12

P=4,000 [ 0.0833
−4,000
0.0833 ] [ ]
1−( 1.00833 )−26 1− (1.00833 )−2
P=4,000 [0.0833
−4,000
0.0833 ] [ ]
1−( 0.0859…) 1−(0.9835 …)
P=4,000 [0.0833
− 4,000
0.0833] [ ]
0.19407 … 0.01646 …
P=4,000 [
0.0833
−4,000 ]
0.0833 [ ]
P=4,000(23.2894)−4,000(1.9752 …)
P=93,157.66−7,901.10
P=85,256.56

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