What is a Valuation Period?

The Valuation Period is known as the interval at the end of a time period wherein the value for variable investment options is comprehended.

Valuation, basically, is the computation of an item’s value and is generally executed by appraisers toward the end of every Business Day.

Explaining the Valuation Period

The valuation period applies to investment products like variable annuities and certain Life Insurance policies. Annuities are those financial products that provide a source of Income to investors during their retirement.

Thus, variable annuities are the annuity products that offer payouts and are adjustable on the Basis of the investments’ performance. The annuity owner gets to choose investment products and allot percentages or entire amounts toward varying investment vehicles.

Furthermore, a variable annuity also provides the competency for massive Earnings and greater payouts. However, because of daily valuation, variable annuities come with more risk than other types, such as fixed deferred annuities and more.

Calculating Future and Present Values

As far as valuation is concerned, it is quite essential to comprehend the process. In terms of annuities and valuation, there are future and present value formulas.

Future Value

Figuring out the Future Value (FV) of a basic annuity formula is efficient when investors know how much they want to invest per period for a specific time period and want to find out how much they will get in the future. This Factor is also useful when it comes to paying a loan as it helps to calculate the total cost of a loan. To calculate the future value of the annuity, calculating the future value of every cash flow over a time period is required.

Basically, annuities have a variety of cash flows. The calculation of future value will need to take the value of every cash flow as well as the original interest rate and investment into consideration. Then, both of these values have to be added to get the accrued future value.

Present Value

The present value is referred to the current value of future payments from an annuity when considering in a certain discount rate or rate of return. The future cash flows of annuity are cut at the rate of discount. This way, the higher the rate of discount, the lower will be the current value of an annuity. Majorly, this calculation is based upon the time value of money concept.