PVIFA Calculator

PVIFA formula

PVIFA = `(1 - (1 + r / 100) ^ -n) / (r / 100)`

Where:-

• r = interest rate per period
• n = number of periods

Example

Suppose we want to calculate the PVIFA for 12 periods with an interest rate of 10%. Using the above formula:-

• `(1 - (1 + r / 100) ^ -n) / (r / 100)`
• `(1 - (1 + 10 / 100) ^ -12) / (10 / 100)`
• `(1 - (1 + 0.1) ^ -12) / 0.1`
• `(1 - 1.1 ^ -12) / 0.1`
• `(1 - 0.3186) / 0.1`
• `0.6814 / 0.1`
• PVIFA = `6.8137`

PVIFA Table

PVIFA can also be calculated using the table given below. The PVIFA table contains the most well-known upsides of both n and r, which promptly shows the worth of PVIFA. The rate is shown across the top line, while the central section shows the number of periods. It gives a way to retrieve the annuity payments. This table is a beneficial device for contrasting various situations, and variable n and r esteems. The cell in the PVIFA table that compares to the proper line and segment demonstrates the current worth factor. This factor is used as the annuity installment and is used to find the present value. The significant disadvantage of a current worth interest factor table is the need to adjust determined figures, which penances accuracy.

The PVIFA is advantageous when deciding whether to take a single amount installment now or acknowledge an annuity installment later. You can use the assessed paces of return to look at the annuity installments' worth to the precise amount. If the annuity installments are for a foreordained sum traversing a foreordained scope of time, then the PVIFA can be determined.

It is adapted to change dependent on the length of the annuity installments and the speculation vehicle used. Higher loan costs bring about lower net present worth computations. The reason for this is that the worth of $1 today decreases if we expect significant yields. The rebate rate utilized in the current worth premium factor computation approximates the average pace of return for future periods.

PVIFA is a subsidiary pointer that proposes the current worth of the series of incomes that the financial backer gets over the period at a given pace of interest. This loan fee could be the danger-free pace of return or the financing cost with the danger premium for the extra danger identified with the guarantor, the speculation time frame that the financial backer will take, or the return that the backer offers. This factor will determine the current sum if the financial backer has substitute choices. He can ascertain the present worth from that choice rate.

At long last, after looking at the two qualities, the financial backer might pick the choice that offers the better Net Present Benefit. Here Net Present Value contrasts the current worth of the proposed venture and the current money outpouring. Ideally, we must pick the speculation choice that has the greatest NPV.