PV Factor Review

Question 1

The formula for converting an Ordinary Annuity factor to an Annuity Due factor

Answer 1

Factor * (1+Interest Rate)

*Ordinary Annuity is less than Annuity Due
This is because ordinary annuities happen later in time.

Question 2

The formula for converting an Annuity Due factor to an Ordinary Annuity factor

Answer 2

Factor / (1+Interest Rate)

*Ordinary Annuity is less than Annuity Due
This is because ordinary annuities happen later in time.

Question 3

When converting from an Ordinary Annuity of one less period, to an Annuity due of one greater period, what is the formula used?

Example: Given Ordinary Due factor for 4 periods, but need Annuity Due factor for 5 periods.

Answer 3

Take Ordinary Annuity Factor +1 to convert to the Annuity due.

*Ordinary Annuity is less than Annuity Due
This is because ordinary annuities happen later in time.

Question 4

When converting from an Annuity due of one greater period, to an Ordinary Annuity of one less period, what is the formula used?

Example: Given Annuity Due factor for 5 periods, but need Ordinary Due factor for 4 periods.

Answer 4

Take Annuity Due Factor -1 to convert to Ordinary Annuity

*Ordinary Annuity is less than Annuity Due
This is because ordinary annuities happen later in time.

Question 5

What are the formulas to convert from FV to PV, and PV to FV?

Answer 5

FV = PV(1+i)^t
PV = FV/(1+i)^t