Present Value Interest Factor - PVIF
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Definition of 'Present Value Interest Factor - PVIF'A factor that can be used to simplify the calculation for finding the present value of a series of values. PVIFs can be presented in the form of a table with PVIF values seperated by respective period and interest rate combinations. The 'r' represents the discount interest rate, and the 't' represents the number of periods. |
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Investopedia explains 'Present Value Interest Factor - PVIF'Using the PVIF works best when you are attempting to discount one value in the future. For example, assume you are going to receive $5,000 in four years time, with the current discount interest rate being 8%. Using the standard present value formula the calculation would be $5,000 / (1+.08)4 .This would result in a present value of approximately $3,675.15. By using a PVIF table, an individual can identify the factor for this calculation being 0.73503 (calculated: 1/(1.08^4)). They can then multiply the $5,000 by 0.73503, which results in $3675.15 as well. This is another way to come to the same answer as the standard present value formula, but becomes a useful technique when you are comparing or dealing with a large number of values. |
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