Use this calculator to verify the math of any payment stream on our inventory page.
Secondary Market Annuities are purely discounted cash flow math. The old truism is “A bird in hand is worth two in the bush.”
In financial terms, that means that a dollar today is worth more than a dollar tomorrow- time erodes the value of a dollar, and the interest rate on your investment increases the value of your dollar.
Secondary Market Annuity payment streams can be simple, or complex, but they all share the same basic fundamentals: A discount rate, applied to a dollar tomorrow, is used to calculate a discounted purchase price today.
The discount rate is the rate of interest applied to your investment today that produces the payout tomorrow. What’s so special about SMAs is that we know exactly what the payout tomorrow will be, and with the discount rate, we can calculate what the exact purchase price is today.
There’s some fairly complex math here that includes compounding periods, rates, daycount (360 vs 365, etc). Be aware that different calculators will yield different due to differences in code and programming. The calculator above will return correct results for a wide range of cash flows as you would find with Secondary Market Annuities.
Lets look at an example so you can do this yourself.
Assume the following: $100,000 lump sum paying out on 1/1/2025, bought on 1/1/2014, at a 5% effective discount rate, with annual compounding.
From the information above, I can calculate the purchase price is exactly $58,467.93
Now, want to check my math? Here’s what you do.
Input the parameters as shown below. Be sure to put the rate into the effective rate field- (SMA’s use effective rate which is APY. Go Here For More Details)
Then, hit “calculate”
You can use this calculator to check the SMA payment streams on our list. Remember, we use TVAL, but this application above should be identical.