What is PVIFA
Assume you have borrowed an amount of $X from a bank that charges compound interest of i% for n periods. You have to repay a periodic payment of $1 for n periods at an interest rate of i%. PVIFA will be the amount of money you borrowed for which you must make periodic payment of $1 for n periods at an interest rate of i%.
As stated earlier compound interest is the interest chraged on a loan plus interest on interest. Compounding of interest may be either discrete or it may be continuous compouding. When interest is calculated per period such as per year, per quarter, per month or per day then it is referred to as periodic or discrete compounding of interest. Yet modern banking permits calculation of interest on continuous scale, this is referred to as continuous compounding of interest. Excel functions only provide results when interest is compounded discretely.
PVIFA MS Excel Example
This article http://support.microsoft.com/kb/141695 from Official Microsoft Excel Support states that "Microsoft Excel does not include a function for determining compound interest".
tadPVIFA Excel function calculates loan principal for which one has to repay a periodic amount of $1 for n periods using either discrete or continuous compounding of interest. No VBA programming required. tadPVIFA Excel function is part of the TADXL Excel add-in for finance, that provides numerous financial functions that are not currently available in Excel. tadPVIFA accepts the following four values
refers to the periodic interest rate
refers to the number of periods
refers to either 0 for end of period deposits or to 1 for start of period deposits
refers to either 0 for discrete compounding of interest or to 1 for continuous compounding of interest
|4||TADXL||=tadPVIFA(B1, B2, B3, B4)||=tadPVIFA(C1, C2, C3, C4)|
You can try out the sample PVIFA calculation in Excel as shown in the previous example. If Excel reports the #NAME error when you enter the =tadPVIFA(B1, B2, B3, B4) function in cell B5, then you must install TADXL Add-in for finance to see the results of loan principal calculation using tadPVIFA function. TADXL is an Excel Add-in for finance, that contains many financial functions which are not provided by Excel. Go ahead and download TADXL now.