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 calculators online that can help you out with the correct inputs and data.
Popular Real Estate Terms
Bottom of a frame such as a window sill. ...
Claim on property by an unpaid workman or contractor. The property may be sold to recover the money owed. The legal justification of the mechanic's lien is that the labor and materials ...
Obligation requiring payments of interest and principal at periodic dates, usually monthly. Interest equals the balance of the loan at the beginning of the period multiplied by the interest ...
Cost of the standard unit of area that is used to measure a parcel of real estate. Commercial property rentals are generally quoted on the basis of square foot cists. For example, a ...
Uncertainties associated with real property including lack of insurance coverage in the event of fire or injury, high crime area, and environmental problems. This risk may be reduced ...
(1) Judges remark in a court ruling not in and of itself embodying the law. A dictum merely illustrates or amplifies the ruling. (2) Arbitrator's ruling. ...
Has not been registered on the companies books. It belongs to the person holding it. See also bearer bond; bearer instrument. ...
A listing of all assets a person or business owns, their cost, and appraised value. A complete inventory record should be maintained including real estate. Documentation is needed in the ...
Contractual clause freeing a party from personal liability. Foe example, an exculpatory clause in a mortgage agreement provides a mortgagor the ability to surrender a mortgage property in ...
Have a question or comment?
We're here to help.