To calculate the Present Value Interest Factor of Annuity (PVIFA) in Excel, we can use the PV function. PV stands for Present Value. In Excel, the PV function calculates the present value of a loan or an investment. Here is a further breakdown of this function:
Syntax: “=PV(rate, nper, pmt, [fv], [type])”
rate: The interest rate per period.
nper: Total number of payment periods.
pmt: The payment made each period; it remains constant throughout the annuity.
[fv]: The future value, or a cash balance you want to attain after the last payment. Optional.
[type]: When payments are due. 0 = end of the period, 1 = beginning. Optional.
For PVIFA, use the formula “=PV(rate, nper, -1)“. The “pmt” is -1 as it represents a series of $1 outflow.
Let’s do it step by step in Excel.
Step 1. Enter Data
Open Excel and begin with a new workbook. In the first row, use two separate cells for labels: A1 for “Interest Rate” and B1 for “Number of Periods”. This setup creates clear headers for your data.
In cell A2, enter the interest rate. And in cell B2, enter the number of periods for the annuity. (For more data combinations, you may want to create a table of PVIFAs. Please directly refer to Step 3.)
Calculating PVIFA in Excel – Step 1
Step 2. Calculate PVIFA in Your Selected Cell
After entering your data, choose where you want the PVIFA result. Let’s say you select cell C2.
In C2, you can now use the PVIFA formula: “=PV(rate, nper, -1)“. Replace “rate” with the cell containing the interest rate (A2) and “nper” with the cell reference for the number of periods (B2).
So, your formula in C1 should look like this: =PV(A2, B2, -1). Hit Enter. Excel will instantly calculate the PVIFA based on your inputs!
Calculating PVIFA in Excel – Step 2 – 1Calculating PVIFA in Excel – Step 2 – 2
If you have a series of interest rates and number of periods, you may need to create a table of PVIFAs in Excel. Let’s modify the method above and follow these steps:
Set Up Your Data: In Row 1 (from B1 onwards), enter your series of interest rates. In Column A (from A2 downwards), enter your series of number of periods.Calculating PVIFA in Excel – Step 3 – 1
Create the PVIFA Table: Select the cell where you want to start your PVIFA table. This should be at the intersection of your interest rates and periods. Let’s say it’s B2. In B2, enter the formula: =PV(B$1, $A2, -1). B$1 references the interest rate in the first row (which will change as you move across columns). $A2 references the number of periods in the first column (which will change as you move down rows).Calculating PVIFA in Excel – Step 3 – 2After entering the formula in B2, drag it across the row to fill it for all interest rates. Then, drag down the column to fill it for all number of periods.Calculating PVIFA in Excel – Step 3 – 3
The cells in your table will automatically update to show the PVIFA for each combination of interest rate and period.
This method creates a dynamic table where you can easily see how changes in interest rates and periods affect the PVIFA. It’s an efficient way to handle multiple PVIFA calculations simultaneously in Excel.
