What Does Present Value Interest Factor (PVIF) Mean?
A factor that can 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 separated by respective period and interest rate combinations, as is shown here. The “r” represents the discount interest rate, and the “t” represents the number of periods.
Investopedia explains Present Value Interest Factor (PVIF)
PVIF works best when one is attempting to discount one value in the future. For example, assume an investor is going to receive $5,000 in four years and the current discount interest rate is 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. Using a PVIF table, an individual finds that the factor for this calculation is 0.73503 (calculated 1/(1.08 ^ 4)). Then, that individual multiplies the $5,000 by 0.73503, giving the same result— $3,675.15. This is another way to express the standard present value but is more helpful when one is faced with a large number of values.
Related Terms:
• Discounted Cash Flow—DCF
• Internal Rate of Return—IRR
• Net Present Value—NPV
• Present Value—PV
• Time Value of Money
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