PVIFs are found in Appendix B of text
o
Interest rate (i) used in PV calculations is known as the discount rate, or the opportunity
cost interest rate used to bring future dollars back to the present.
Annuities

Mortgage payments, pension funds, insurance obligations and interest received from bonds all
involve annuities

Annuity
– a series of equal dollar payments coming at the end of each time period for a specified
number of time periods (years, months, etc)
o
life insurance benefits, lottery payments, retirement payments, loans, bond interest
payments
o
a sequence of equal cash flows, occurring at the end of each period

because annuities occur frequently in finance, they are treated specially
o
bond interest payments, and mortgage payments
Compound annuities

Compound annuity
involves depositing or investing an equal sum of money at the end of each
year (or time period) for a certain number of years (or time periods, e.g. months) allowing it to
grow.
o
Perhaps you are saving your money for education, a new car, or a vacation home, you’ll
want to know how much your savings will have grown by some point in the future
Future value of an annuity equation using textbook factor tables

FV sub n = the future value of a sum of money at time (n)

PMT – the payment made at the end of each time period

FVIFA sub I, n= the futurevalue interest factor for an annuity for a given interest rate (i) and
period number (n)

Used to determine the future value of a stream of payments such as the value of your 401(k)
contributions

FVIFAs are found in Appendix C of the text
Calculating the Future value of an annuity: an IRA
Present value of an annuity equation

Presentvalue interest factor of an annuity (PVIFA i, n) –
multiplier used to determine the
present value of an annuity.
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