PVIFA (Present Value Interest Factor of an Annuity)
Use Case: To determine the present
value of a series of equal future payments (an annuity). This is helpful when evaluating investments like mortgages, loans, or pensions where you want to know the current value of a stream of future cash flows.
FVIFA (Future Value Interest Factor of an Annuity)
Use Case: To calculate the future value of a series of equal payments made at regular intervals. This is useful when planning for retirement savings, where you want to know how much your regular contributions will accumulate over time.
Key Differences
Feature PVIFA FVIFA
Focus Present Value Future Value
Calculation Discounts future payments to their present value Compounds a series of payments to their future value
Typical Use Cases Evaluating loans, mortgages, pensions Retirement savings, annuities
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In Essence
PVIFA helps you understand the current worth of future income streams.
FVIFA helps you project the future worth of regular investments.
Note: Both PVIFA and FVIFA rely on the concept of time value of money, which states that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.