Question

What key words or phrases would we be able to identify that would tell us which time value table to use?

Answer 1

In using the time value tables, we come across three types (separately for each type of present value and future value) of tables to arrive at the desired value.

1) Present value table.

2) Present value of annuity due table.

3) Present value of ordinary annuity table.

Similarly, for calculating the future value, there will be three types of tables:

1) Future value table.

2) Future value of annuity due table.

3) Future value of ordinary annuity table.

Now, if we have to make or receive the payment in one lump sum after some period of time, we will use the first type of table, i.e. present value table or future value table. Usually, it is denoted by Present value interest factor (PVIF) or Future value interest factor (FVIF) as the case may be.

If we have to make or receive the payments periodically on regular intervals (monthly, quarterly, semi-annually, annually) and the payments are of equal amount then the payments will be termed as annuity. when the payments start at the beginning of the period, then it will be annuity due. So, the required tables to use will be present value of annuity due (PVIFDA) or future value of annuity due (FVIFDA) table, as the case may be.

On the other hand,if we have to make or receive the payments periodically on regular intervals (monthly, quarterly, semi-annually, annually) and the payments start at the end of the period, then it will be ordinary annuity. So, the required tables to use will be present value of annuity or ordinary annuity (PVIFA) OR future value of annuity or ordinary annuity (FVIFA) table, as the case may be.