Definition of Pvifa
Present value interest factor of annuity or PVIFA is a discount factor that is used to calculate the present value of the annuity. An annuity is a stream of exact cash flows equally spread over a timeline. The present value interest factor of an annuity is the sum of all the discount factors used to discount the cash flow of each period.
For example, the 6 years annuity factor at 8% will be as follows:
|
Year |
Discount factor @ 8% |
|
|
1 |
(1+8%)-1 |
0.925926 |
|
2 |
(1+8%)-2 |
0.857339 |
|
3 |
(1+8%)-3 |
0.793832 |
|
4 |
(1+8%)-4 |
0.73503 |
|
5 |
(1+8%)-5 |
0.680583 |
|
6 |
(1+8%)-6 |
0.63017 |
|
PVIFA |
4.62288 |
|
The total of 4.62288 is a short form that is calculated using the following formula:
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