Financial Modeling Tutorials
 Financial Modeling Basics
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 Financial Functions in Excel
 Sensitivity Analysis in Excel
 Time Value of Money
 Future Value Formula
 Present Value Factor
 Perpetuity Formula
 Present Value vs Future Value
 Annuity vs Pension
 Present Value of an Annuity
 Doubling Time Formula
 Annuity Formula
 Annuity vs Perpetuity
 Annuity vs Lump Sum
 Internal Rate of Return (IRR)
 NPV vs XNPV
 NPV vs IRR
 NPV Formula
 PV vs NPV
 IRR vs ROI
 Break Even Point
 Payback Period & Discounted Payback Period
 Payback period Formula
 Discounted Payback Period Formula
 Profitability Index
 Cash Burn Rate
 Simple Interest
 Simple Interest vs Compound Interest
 Simple Interest Formula
 CAGR Formula (Compounded Annual Growth Rate)
 Effective Interest Rate
 Loan Amortization Schedule
 Mortgage Formula
 Loan Principal Amount
 Interest Rate Formula
 Rate of Return Formula
 Effective Annual Rate
 Effective Annual Rate Formula (EAR)
 Daily Compound Interest
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 Discount Rate vs Interest Rate
 Rule of 72
 Geometric Mean Return
 Real Rate of Return Formula
 Continuous compounding Formula
 Weighted average Formula
 Average Formula
 Average Rate of Return Formula
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 Weighted Mean Formula
 Harmonic Mean Formula
 Median Formula in Statistics
 Range Formula
 Expected Value Formula
 Exponential Growth Formula
 Margin of Error Formula
 Decrease Percentage Formula
 Percent Error Formula
 Holding Period Return Formula
 Cost Benefit Analysis
 Cost Volume Profit Analysis
 Opportunity Cost Formula
 Mortgage APR vs Interest Rate
 Regression Formula
 Correlation Coefficient Formula
 Covariance Formula
 Coefficient of Variation Formula
 Sample Standard Deviation Formula
 Relative Standard Deviation Formula
 Volatility Formula
 Binomial Distribution Formula
 Quartile Formula
 P Value Formula
 Skewness Formula
 Regression vs ANOVA
Present value factor deals with the idea of time value for money by trying to estimate the current value per dollar to be received at a future date. The underlying idea is that any amount received today is of greater value than if that same amount were to be received on a future date since it can be reinvested to increase the overall earnings.
Present Value factor Formula
 r = rate of return
 n = number of periods
Derivation of Present Value Factor Formula
This is the original formula for PV factor from which the formula we have presented above is derived.
 Here, FV = Future Value
 r = rate of return
 n = number of periods
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Examples of Present Value Factor Formula
Suppose, if someone were to receive $1000 after 2 years, calculated with a rate of return of 5%. Now, the term or number of periods and the rate of return can be used to calculate the PV factor for this sum of money with the help of the formula described above.
PV factor = 1 / (1+r)^{n} = 1/(1+0.05)^{2 } = 0.907
Now, multiplying the sum of $1000 to be received in future by this PV factor, we get:
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$1000 x 0.907 = $907
This means that $907 is the current equivalent of the sum of $1000 to be received after 2 years with a rate of return of 5% and it could be possible to reinvest this sum of $907 somewhere else to receive greater returns.
Explanation of PV factor Formula
Present value factor formula is centered on the idea of assessing if an ongoing investment can be encashed and utilized better to enhance the final outcome as compared to an original outcome which can be had with the current investment. With a view to estimating what would be the current value of a certain sum to be received on a future date, we need two factors, namely, the time interval after which the sum is to be received and the rate of return for the same. These two factors can then be used to calculate present value factor for any given sum to be received on any given future date.
This PV factor would help calculate the current equivalent amount for the future sum in terms of time value for money and then it is used to calculate how better returns can be achieved by reinvesting this current equivalent in a relatively better avenue.
Use of Present Value Factor Formula
This concept of PV factor can be of great use in estimating if a current investment would be worth continuing with, or a portion of it can be received today and reinvested to receive greater returns. If one finds that present value of the sum to be received in the future can yield higher returns in an alternative investment, it shed further light on the value of a current investment and any viable alternatives. This would potentially be of great help in making betterinformed investment decisions.
Present Value Factor Calculator
You can use the following Present Value Factor Calculator.
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Present Value Formula =  
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Present Value Factor Formula in Excel (with excel template)
Let us now do the same example above in Excel. This is very simple. You need to provide the two inputs of Rate of Returns and Number of Periods.
You can easily calculate the Present Value Factor in the template provided.
You can download this PV factor template here – Present Value Factor Excel Template
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This has been a guide to Present Value Factor formula, its uses along with practical examples. Here we also provide you with Present Value Calculator with downloadable excel template.
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