How to Calculate Annuity Factor in Excel (2 Ways)

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The time value of money is one subject that anyone working in banking or finance should be proficient in. To execute the work properly, one must understand exactly what it means to discount anything or to calculate the future worth of a specific investment vehicle. Excel is a fantastic resource for these calculations. Excel provides a variety of formulae for almost every function in finance and banking, including special annuity calculations that employ the present and future value of annuity formulas. In this article, we will show you how to calculate the annuity factor in Excel.


Annuity Factor: Overview

The amount that will be paid out under an annuity arrangement at various points in time is calculated using an annuity factor. Because it enables you to visualize how your money will increase over time, an annuity factor is crucial. Both private and commercial usage of this calculation is permitted. The annuity factor, for instance, will show you how much money you would receive each year if you decide to invest in an annuity. You can use this information to decide if an annuity is an appropriate choice for you. The following image represents the general Annuity PV Factor formula.

Sample Data


The amount that will be paid out under an annuity arrangement at various points in time is calculated using an annuity factor. It is often referred to as the annuity’s present value. In the following two methods, you will learn how to calculate the Annuity Factor in Excel utilizing the PV function and the FV function. Let’s suppose we have a sample data set.

Sample Data

 

1. Using the PV Function to Calculate the Present Value Annuity Factor in Excel

The term “present value of annuity” describes the current worth of anticipated future annuity payments. The lower the value of an annuity, the higher the rate. If you want to know if receiving periodic payments over a number of years or a lump sum payment now will net you more money, you can calculate the present value annuity factor. The following represents the PV function of calculating the present value annuity factor.

Step 1:

  • Firstly, select cell C5.
  • And write down the following formula.

=PV(2%,$B5,-1)
  • Here, 2 percent represents the interest rate (r).
  • And, $B5 shows the years (n).
  • Then, the negative value of 1 conveys the payment factor.

Sample Data

Step 2:

  • Now, press Enter, and cell C5 will show the value of the annuity factor.

Sample Data

Step 3:

  • Here, use the Fill Handle tool and drag it down from cell C5 to C15. Therefore, we will get the results of other cells.

Sample Data

Step 4:

  • Besides, follow the above procedure for columns D and E.
  • Finally, you will get the total results of the present value annuity factor for 2%, 4%, and 6% rates (r) with different time periods (n).

Sample Data

Step 5: 

  • In this step, we will give an example of the present value annuity for 4% rates and a 10-year time period.
  • And, you will multiply the present value annuity factor with the payment using the following formula.
=C19*D13
  • Here, C19 and D13 columns represent the payment and the annuity factor.

Easy Ways to Calculate Annuity Factor in Excel

Step 6:

  • Then, you will observe the following results of the present value annuity.

Easy Ways to Calculate Annuity Factor in Excel

Read More: How to Calculate Annuity Payments in Excel


2. Applying Excel FV Function to Calculate the Future Value Annuity Factor

The value of a number of recurrent payments made at a specific future date at a specific rate of return or discount rate is referred to as the future value of an annuity. The value of the future annuity increases with the rate to determine how valuable a series of payments will be at some point in the future. The FV function used to determine the future value annuity factor is depicted in the following diagram.

Sample Data

Step 1:

  • Firstly, choose cell C5.
  • And write down the following formula in cell C5.
=FV(2%,$B5,-1)
  • Here, 2 % represents the interest rate (r).
  • And, $B5 shows the years (n).
  • Then, the negative value of 1 conveys the payment factor.

Easy Ways to Calculate Annuity Factor in Excel

Step 2:

  • Once you press Enter, cell C5 will display the specified annuity factor value.

Easy Ways to Calculate Annuity Factor in Excel

Step 3:

  • Drag the AutoFill Handle tool from cell C5 to C15 in this instance. We will therefore receive the data from other cells.

Easy Ways to Calculate Annuity Factor in Excel

Step 4:

  • Additionally, repeat the process for columns D and E.
  • The total results of the present value annuity factor for the rates of 2 percent, 4 percent, and 6 percent (r) across various time periods are what you would receive in the end (n).

Easy Ways to Calculate Annuity Factor in Excel

Step 5:

  • In this phase, we’ll provide an example of a present value annuity for a time period of 10 years and a rate of 4 percent.
  • In this case, multiply the payment by the present value annuity factor using the following formula.

=C19*D13
  • Here, C19 and D13 columns represent the payment and the annuity factor.

Easy Ways to Calculate Annuity Factor in Excel

Step 6:

  • You will then see the future value annuity’s outcomes as follows.

Easy Ways to Calculate Annuity Factor in Excel

Read More: How to Calculate Deferred Annuity in Excel


Download Practice Workbook

You may download the following Excel workbook for better understanding and practice it by yourself.


Conclusion

In this article, I’ve covered 2 handy methods to calculate the Annuity Factor in Excel. I sincerely hope you enjoyed and learned a lot from this article. Additionally, if you want to read more articles on Excel, you may visit our website, Exceldemy. If you have any questions, comments, or recommendations, kindly leave them in the comment section below.


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Bishawajit Chakraborty
Bishawajit Chakraborty

Bishawajit Chakraborty, a Rajshahi University of Engineering & Technology graduate with a B.Sc. in Mechanical Engineering, has been associated with ExcelDemy since 2022. Presently, he is a content developer, specializing in Excel Power Query, Data Analysis and VBA. It is worth mentioning that he has authored more than 90 articles on VBA content development. His profound interest lies in the fields of data analytics and data science. He possesses expertise in VBA, Power BI, machine learning, and Python... Read Full Bio

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