Future value interest factor annuity
An Annuity is a series of payments of a fixed amount for a specified number of equal length periods When the FV of an annuity is known, and you need to calculate the value of each payment, or the FVIFA, then: FVIFA = Future Value Interest Factor Annuity FVIFA = ((1 + r)t -1)/r FVA = Future Value of an Annuity FVA = PMT x (FVIFA r, t) * where: PMT = Regular payments r = discount rate - (interest rate of your choosing) t = number of periods (time) of annuity - (number of years for example) When the PV of an annuity is already known, and you need to calculate the value of each payment, or the PVIFA, then: PVIFA = Present Value Interest Factor Annuity PVIFA = ((1/r) - 1/r(1+r)t ) PVA = Present Value of an Annuity PVA = PMT x (PVIFA r, t) * where: PMT = Regular payments r = discount rate - (interest rate of your choosing) t = number of periods (time) of annuity - (number of years for example)
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FVIFA is used in the following situations: a. What will be the accumulated savings if the annual savings is Rs.X for a given period? b. How much should we save annually to get a lump sum amount after a certain period of time? c. For redemption of debentures, how much should a firm deposit annually in sinking fund account to accumulate the redemption amount? PVIFA is used in the following situations: a. How much should i borrow for a particular EMI? b. How to calculate loan amortization schedule? c. How much should we invest for a certain period of time in order to make systematic withdrawal every month/year?
Extremely useful