# Modified Dietz Method

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## Definition of 'Modified Dietz Method'

The Modified Dietz Method is a method of calculating the present value of an annuity. It is a variation of the Dietz Method, which was developed by Adolph Dietz in 1912. The Modified Dietz Method takes into account the time value of money and the fact that an annuity can be paid in installments.

The formula for the Modified Dietz Method is:

```
PV = A * [(1 + i)n - 1] / i
```

where:

* PV is the present value of the annuity
* A is the amount of each annuity payment
* i is the interest rate
* n is the number of years of the annuity

To use the Modified Dietz Method, you first need to calculate the present value of each annuity payment. This is done by multiplying the amount of each payment by the present value factor for the appropriate interest rate and number of years.

Once you have calculated the present value of each annuity payment, you can add them together to get the present value of the entire annuity.

The Modified Dietz Method is a more accurate method of calculating the present value of an annuity than the Dietz Method. However, it is also more complex. For this reason, the Modified Dietz Method is not as commonly used as the Dietz Method.

Here is an example of how to use the Modified Dietz Method to calculate the present value of an annuity. Suppose you are offered an annuity that will pay you \$1,000 per year for 10 years. The interest rate on the annuity is 5%. To calculate the present value of the annuity, you would first need to calculate the present value of each annuity payment. This is done by multiplying the amount of each payment by the present value factor for 5% and 10 years. The present value factor for 5% and 10 years is 0.6139. So, the present value of each annuity payment is \$1,000 * 0.6139 = \$613.90.

Once you have calculated the present value of each annuity payment, you can add them together to get the present value of the entire annuity. In this case, the present value of the annuity is \$613.90 * 10 = \$6,139.00.

The Modified Dietz Method is a more accurate method of calculating the present value of an annuity than the Dietz Method. However, it is also more complex. For this reason, the Modified Dietz Method is not as commonly used as the Dietz Method.

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