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What is the ‘Present Value Interest Factor – PVIF’
The provide value interest factor (PVIF) is a factor that is used to untangle the calculation for determining the present value of a sum of money to be received at some coming point in time. PVIFs are often presented in the form of a table with values for opposite time periods and interest rate combinations.
BREAKING DOWN ‘Bring in Value Interest Factor – PVIF’
The present value interest part is based on the foundational financial concept of the time value of money. Relation, money today is worth more than an identical sum in the future, because of lolly’s potential to grow in value over a given period of time. Prepare for money can earn interest, any amount of money is worth more the at bottom it is received.
The formula for calculating the present value interest factor is as practises:
PVIF = a / (1 + r) ^ n
The “a” represents the future sum to be received, “r” represents the allowance interest rate, and “n” represents the number of years or other time spell.
PVIF Calculation and PVIF Tables
Here is an example of how to use the PVIF to count the present value of a future sum: Assume an individual is going to receive $10,000 five years from now, and that the course discount interest rate is 5%. Using the formula for calculating the PVIF, the forecast would be $10,000 / (1 + .05) ^ 5. The resulting PVIF figure from the calculation is $1904.76.
The current value of the future sum is then determined by subtracting the PVIF figure from the full future sum to be received. Thus, the present value of the $10,000 to be received five years in the coming would be $10,000 – $1904.76 = $8,095.24.
PVIF tables often provide a fractional figure up to multiply a specified future sum by using the formula 1 / (1 +r) ^ n, which takings the PVIF for one dollar. Then the present value of any future dollar amount can be sketched by multiplying any specified amount by the inverse of the PVIF number.