Annuity Factor
The annuity factor definition is the use of a financial method that shows the value, present or future, of an amount when it is multiplied by a periodic amount. The calculation of an annuity factor requires the number of years involved, or the periodic amount, and the percentage rate applicable. The most often used for annuity factors are investments with either or both an annual payment or return. Typical examples of annuity factors being applied are savings accounts, certain types of insurances, or retirement savings plans.
The annuity factor meaning is a particular type of accumulating discount factor used to determine the present or future value of annuities, as well as equated installments. Another name for annuity factors is the annuity formula, and we’ll get into that momentarily.
The Present Value Annuity Factor
The present value annuity factor allows you to determine the amount of money required at the present time in order to result in a future series of payments assuming a fixed interest rate is applied.
In order to reach the present value annuity factor, a formula is used that discounts a future value amount to the present value amount through the use of the applicable interest rate. The period of time during which the investment will last is also taken into account to reach the correct value.
The Present Value Annuity Formula
With:
C=cash flow per period
i = interest rate
n = number of payments
The Future Value Annuity Factor
The future value annuity factor gives access to the final return value of a series of regular investments taking into account their worth at a future time, usually at the end of the investing period, assuming that a fixed interest rate is applied.
To reach the future value annuity factor, the formula above is slightly altered in order to add the values collected over the years by also accounting for the set interest rate.
The Future Value Annuity Factor
With:
C=cash flow per period
i = interest rate
n = number of payments
Applying the Annuity Factor formulas:
Considering an investment with an annual $2,000 payment over the course of five years at an interest rate of 5%, let’s see what the present and future value would be.
The previous formulas can help you determine the present and future values of ordinary annuities. While the math might seem complicated, there are financial calculatorsonline that can help you out with the correct inputs and data.
Popular Real Estate Terms
Part of a building that is connected to but leads away from the main structure. ...
See quantity survey method. ...
payment of a debt before its due such as a mortgage payment or insurance premiums. ...
Type of a real estate investment trust whose investment money is used for the purchase of a portfolio of specific properties to be managed in order to generate investment return through ...
An Act, passed by congress in order to prevent the practice of redlining and disinvestments in central city areas. Redlining is a practice in which lenders refuse to make loans in certain ...
(1) Bracket used to support an extended eave or cornice on the outside of a house. (2) Truss or beam projection beyond its base and supported by its strength and rigidity, such as a ...
The term assessed value is used to define the dollar value of a property for the applicable taxes. The evaluator, a tax assessor, determines the property’s assessed value for tax ...
Green lumber is not necessarily a lumber that’s green; though it might, sometimes, be a little greenish. And it’s also not a definition of an environmentally conscious type of ...
Right to profit by utilizing the assets of another's land. A profit a' prendre would include the right to use and mine another's property recovering and removing any assets. ...
Have a question or comment?
We're here to help.