Home
Back
Present Value Factor Formula:
| From: | To: |
The Present Value Factor (also known as Annuity Present Value Factor) is the multiplier used to calculate the present value of a series of equal periodic payments discounted at a specific interest rate over a certain number of periods.
The calculator uses the Present Value Factor formula:
Where:
Explanation: This formula calculates the present value of a series of equal cash flows occurring at regular intervals, discounted at a specific interest rate.
Details: The Present Value Factor is crucial in financial analysis for evaluating investment opportunities, calculating loan payments, determining annuity values, and making capital budgeting decisions.
Tips: Enter the rate per period as a decimal (e.g., 5% = 0.05) and the number of periods. Both values must be positive numbers.
Q1: What's the difference between present value factor and annuity factor?
A: The present value factor refers to the discount factor for a single cash flow, while the annuity factor (as calculated here) is for a series of equal periodic payments.
Q2: Can this calculator be used for monthly payments?
A: Yes, ensure the rate corresponds to the period (monthly rate for monthly payments) and the number of periods matches the payment frequency.
Q3: What happens if the rate is zero?
A: The formula becomes undefined at zero rate. For practical purposes, use a very small positive rate instead of zero.
Q4: How is this different from future value factor?
A: Present value factor discounts future cash flows to today's value, while future value factor compounds present value to a future date.
Q5: What are typical applications of this calculation?
A: Mortgage calculations, lease payments, retirement planning, bond valuation, and any scenario involving regular periodic payments.