The present value of an annuity is the current value of a set of future cash flows. It is determined using a discount rate. The discount rate used is determined at the beginning of every month by the federal government. The higher the discount rate, the lower the present value of the annuity and vice versa.
The time value of money simply states that the present value of money increases as you get closer to the maturity date of your payment stream or future lump sum payment. Also, as your future payments extend further into the future, the present value of money decreases. For example, if you’re due to receive $5,000 in 10 days, then the present value is higher today than it would be if you were due to receive $5,000 in 2027.
The present value of an annuity can be calculated using future payment streams such as monthly payments, future lump sum payments, or a variety of other regular payment streams.
***The present value of your annuity calculated with our calculators tells you the present value of your annuity according to the current government rate. This does not represent the amount of money that you will receive if you decide to sell your future payments. You will receive a far less offer from any settlement funding company.