PVIFA Calculator

How to Calculate PVIFA

The Present Value Interest Factor of Annuity (PVIFA) is a crucial concept in finance used to calculate the present value of a series of equal payments to be received in the future. This guide will walk you through the process of calculating PVIFA.

PVIFA Formula

The formula for PVIFA is:

$$PVIFA=\frac{1-(1+r{)}^{-n}}{r}$$

Where:

• PVIFA = Present Value Interest Factor of Annuity
• r = Interest Rate per Period
• n = Number of Periods

Calculation Steps

1. Identify the interest rate (r) and convert it to a decimal if necessary.
2. Determine the number of periods (n).
3. Apply the PVIFA formula.
4. Calculate the result to find the PVIFA.

Example Calculation

Let's calculate the PVIFA with the following characteristics:

• Interest Rate (r): 5% per year
• Number of Periods (n): 10 years

Step 1: Convert the interest rate to a decimal

r = 5% = 0.05

Step 2: Apply the PVIFA formula

$$PVIFA=\frac{1-(1+0.05{)}^{-10}}{0.05}$$

Step 3: Calculate the result

$$PVIFA=\frac{1-0.6139}{0.05}=7.7217$$

Therefore, the PVIFA for an interest rate of 5% over 10 periods is 7.7217.

Visual Representation

This line chart illustrates how the PVIFA changes over the 10-year period with a 5% interest rate. The PVIFA increases as the number of periods increases, reflecting the time value of money.