Capital recovery factor
Encyclopedia
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 n is the number of annuities received.
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 n = 1, the CRF reduces to 1+i. As n goes to infinity, the CRF goes to i.
Annuity (finance theory)
The term annuity is used in finance theory to refer to any terminating stream of fixed payments over a specified period of time. This usage is most commonly seen in discussions of finance, usually in connection with the valuation of the stream of payments, taking into account time value of money...
to the present value
Present value
Present value, also known as present discounted value, is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk...
of receiving that annuity for a given length of time. Using an interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
i, the capital recovery factor is:
where n is the number of annuities received.
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 n = 1, the CRF reduces to 1+i. As n goes to infinity, the CRF goes to i.