Calculate the present value interest factor of an annuity and see the formula used to discount equal payments.
The present value interest factor of an annuity is a shortcut for valuing equal payments received at regular intervals. If the factor is 23.1148 and the payment is $1,000 per period, the present value of the payment stream is about $23,115.
PVIFA = (1 - (1 + r)-n) / r, where r is the periodic discount rate and n is the number of periods. When the rate is 0%, the factor simply equals the number of periods.
The calculator assumes equal payments, a constant periodic rate, and end-of-period payments. If payments happen at the beginning of each period, multiply the result by 1 + r to estimate the annuity-due factor.
PVIFA stands for present value interest factor of an annuity. It converts a stream of equal future payments into a present-value factor using a periodic discount rate and number of periods.
PVIFA equals one minus one plus the periodic rate raised to the negative number of periods, divided by the periodic rate. Multiplying that factor by the payment gives the present value of the annuity.
When the rate is zero, the factor is simply the number of periods because future payments are not discounted.
At a 5% periodic rate over 10 periods, the PVIFA is about 7.7217. A $1,000 payment stream with that factor has a present value of about $7,722.
The factor is lower than 10 because money received later is discounted back to today.
Use PVIFA for loan payments, lease payments, pension streams, installment notes, and any situation with equal periodic cash flows.
It is a building block for valuation and lending because it connects recurring payments to present value.
Match the rate to the period. If payments are monthly, use a monthly rate, not an annual rate. If payments are annual, use an annual rate.
Also match the number of periods to the payment frequency. Five years of monthly payments is 60 periods, not 5.
PVIFA means present value interest factor of an annuity. It is the factor used to discount equal payments to today.
No. PVIFA is the factor. Present value equals the payment amount multiplied by the factor.
Enter the rate for the payment period. For monthly payments, use the monthly discount rate.
A higher discount rate reduces the present value of future cash flows, so the factor decreases.