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Overview¶

This article explains various means of calculating the payment amount of an annuity given the present value and interest rate.

IMPORTANT NOTE REGARDING INTEREST RATES AND APR

1. In the following formulas, the interest rate is the PERIODIC rate. Thus, if `N` is in months, then the interest rate should be PER MONTH.

2. Banks typically calculate APR as COMPOUNDED YEARLY. Thus if `N` is in months, then the interest rate you use should be `APR/12`.

Solutions¶

In Visual Basic¶

```Function AnnuityToPvRatio(i As Double, N As Integer) As Double

Dim fp As Double
fp = FutureToPvRatio(i, N)

AnnuityToPvRatio = (i * fp) / (fp - 1)

End Function
Function FutureToPvRatio(i As Double, N As Integer) As Double

FutureToPvRatio = (1 + i) ^ N

End Function```

Manual Calculation¶

```         i (1+i)^N
A/P = ---------------
(1+i)^N - 1

i (F/P)
= -------------
(F/P) - 1```

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