Capital recovery factor
Appearance
A capital recovery factor is the ratio of a constant annuity to the present value of receiving that annuity for a given length of time. Using an interest rate i, the capital recovery factor is:
where is the number of annuities received.[1]
This is related to the annuity formula, which gives the present value in terms of the annuity, the interest rate, and the number of annuities.
If , the reduces to . Also, as , the .
Example
[edit]With an interest rate of i = 10%, and n = 10 years, the CRF = 0.163. This means that a loan of $1,000 at 10% interest will be paid back with 10 annual payments of $163.[2]
Another reading that can be obtained is that the net present value of 10 annual payments of $163 at 10% discount rate is $1,000.[2]
References
[edit]- ^ Calculator by Jenkins at University of California Archived July 8, 2006, at the Wayback Machine
- ^ Jump up to: a b "Capital Recovery Factor". www.homerenergy.com. Retrieved 2019-03-18.