The formula for the present value interest factor for

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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 PVIFAi,n 1 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 a spreadsheet. EXAMPLE Input 700 Function PMT 5 N 8 I CPT PV Solu...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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