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Unformatted text preview: (1 (4.15) This factor is the multiplier used to calculate the present value of an ordinary
annuity at a specified discount rate over a given period of time.
By letting PVAn equal the present value of an n-year ordinary annuity, letting
PMT equal the amount to be received annually at the end of each year, and letting PVIFAi,n represent the appropriate present value interest factor for a onedollar ordinary annuity discounted at i percent for n years, we can express the
relationship among these variables as
PVAn PMT (PVIFAi,n) (4.16) 9. A mathematical expression that can be applied to calculate the present value interest factor for an ordinary annuity more efficiently is
i 1 1
(1 i)n (4.15a) The use of this expression is especially attractive in the absence of the appropriate financial tables and of any financial calculator or personal computer and spreadsheet. 148 PART 2 Important Financial Concepts The following example illustrates this calculation using a table, a calculator, and
PMT 5 N 8 I
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