This is a tool that enables you to calculate one of the factors associated with the time value of an annuity: the annual interest rate, the present or future annuity value, the term or the payment. For example, the tool could be used to calculate the monthly payments required for a mortgage or the interest rate needed for regular yearly deposits to result in a certain sum of money after a given time.

The tool is multi-directional and, therefore, determines the information that needs to be calculated based on which data has been entered. In other words, if three out of the annuity value (present or future), the payment, the term or the annual interest rate are entered, the tool calculates the remaining one. When further data changes are made, the tool re-calculates the same time value factor unless that factor is itself changed or a different data field is cleared.

Note: The tool assumes that the annuity has fixed payments, i.e. it cannot be a growing annuity.

Note: For simplicity, the interest compounding frequency is assumed to be the same as the payment frequency for this tool, and thus there is no separate compounding frequency drop down box. (This is only relevant if the annual interest rate is nominal rather than effective.)

In more detail, the information that can be entered and/or calculated is:

• The present or future value of the annuity.
• The annuity type, which is either ordinary or annuity-due. The difference between these types is that for an ordinary annuity, the payments are at the end of each period, whereas for an annuity-due, the payments are at the beginning of each period.
• The payment frequency, which specifies the frequency of the annuity payments and also how often interest is compounded per year (if the nominal annual interest rate is given). The possible values for the payment frequency are annual (default), semiannual, quarterly, monthly, weekly or daily
• The annuity payment.
• The annuity term, in years, months, weeks or days.
• The annual interest rate, which can be entered as either a nominal (default) or effective rate. If it is a nominal annual rate then it is used together with the compounding and payment frequencies to determine the interest rate applied per payment period, though the compounding frequency is assumed to be the same as the payment frequency for this tool. An effective annual rate, on the other hand, is a rate that has already factored in the periodic compounding to give a rate equivalent to interest being compounded annually, and thus only needs payment frequency to determine the interest rate applied per payment period. On the tool form, the rate is usually expressed in percentage terms (unless the formatting is explicitly set to express it as a decimal).

Associated tool link: http://www.coggit.com/tools/time_value_of_an_annuity.html