What is PVIFA Calculator?
PVIFA Calculator is a useful tool that sets to compute the worth of money over time. The term PVIFA calculator which is most often used in economics stands for the present value of the interest factor of an annuity which is directly linked with the time value of money. Taking the fact that over time, the value of money is subject to depreciation, PVIFA calculator is designed to depict a general view of how the value of money will change in a specific period of time and thus help you make up your mind for the best investment.
A Close Look at the PVIFA calculator
As a tool, the PVIFA calculator has two basic metrics which are
- Interest Rate of Periods
- Number of periods
In the PVIFA calculator, the interest rate of periods is a percentage and the number of periods should be interested as a number.
What is PVIFA Formula?
As a calculation tool, PVIFA calculator sets out to help those who need insight into the time value of money and how beneficial an investment will be. Though this calculation can be done by the PVIFA calculator, having an idea about it provides a clear understanding of how it all works. The main formula that PVIFA calculator works with is:
PVIFA = (r1−(1+r)−n)/r
In this formula there are 2 variables which are represented by r and n. the first variable, r, represents the rate of interest of the periods, shown in the form of decimal, and n stands for the number of periods which can be years, decades, etc.
This formula enables users to calculate the future value of consequent payments which will be obtained in a special manner and at a special rate of interest. According to this method, the payment is multiplied by the factor.
Using this formula will let the users recognize the most beneficial manner of payments. As an example, making a choice between one single payment or some successive payments in while future may sound complicated. The PVIFA calculator gives users a good view of the most profitable choice. It must be also taken into account that the PVIFA calculator works only if there is a guarantee about constant future payments
How does the PVIFA calculator formula work?
As mentioned, r stands for the rate of interest. This rate is actually the average rate of interest for periods of time. As an unsaid rule, most often the rate of interest remains constant through all periods, however, if the rates are different the average of all periods must be inserted in this formula.
In the next level, the number of periods should be determined and inserted. In this formula, the number of periods is represented by n.
Using a PVIFA table or chart will be of more convenience to users who want to look up the interest rates and periods of time, especially if the number of periods overrun 10. As a useful tool, tables provide users with the possibility of comparing different future possibilities. In each table, there are two variables as “n” and “r”. The rate of interest is presented across the top row and the first column is to display the number of periods. The only downside that gives the present value interest factor table a negative point is that it is necessary for the calculated figures to be rounded which in return lessens the precision.
How can PVIFA calculator act as a useful tool?
PVIFA or The present value factor interest of annuity is a financial help that most often advisers take advantage of. This tool can help you make a comparison between taking the entire annuity at the moment or later on. This decision will be made based on evaluations of the current value of money and its time value.
Frequently Asked Questions (FAQs)
PVIFA calculator or the present value interest factor refers to payments that you will receive once at a given time or gradually at several periods of time. The PVIFA calculator is a tool that can predict accurately how much money the investment will bring about and whether it is beneficial to invest in such an annuity or not. The PVIFA calculator is a new tool that helps business people reach a convincing answer regarding the current value of the cash flows of an annuity. Taking advantage of PVIFA calculator, people can compare the future outlook of different types of investment and decide based on the present value of future annuities. People normally trust the current perspective of the highest future value.
PVIFA calculator works based on a general formula:
PVIFA = 1 − (1 + r)−n / r
Although inserting periodic rate of interest and number of periods, can help users come up with the result, using PVIFA calculator can support them with more speed and accuracy.
The current value of an annuity with interest rates on a per-period basis is expressed as the annuity factor. Whenever there are problems dealing with conditions like involving annuities in growth, non-growing, and decreasing. The present or current value interest factor or PVIFA calculator helps users calculate the present value of a range of annuities of the future. As a tool, PVIFA calculator deals mainly with the time value of money and indicates the current value of any currency is a lot worthier than its worth in the future. Business people use this tool to reach a prospective view of their future gains and achievements.
PVIFA calculator is designed with the capability of taking both the present worth of a currency and its future growth into account. The present value interest of the annuities is in fact the discount rate that is mainly applied to indicate the current worth of an annuity. This is a rate that is designed to consider future risks as well.