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Valuation Tables




Dr. Fauziah Raji
WhaL are valuauon 1ables?
! A book LhaL feaLures references, Lables and speclc calculauons
LhaL wlll help a sLudenL or pracuuoner analyse lnvesLmenLs and Lhe
deLalled numbers behlnd Lhem.

! 1hese valuauon and lnvesLmenL Lables baslcally allow a properLy
valuauon professlonal, developer or anyone lnLeresLed ln properLy
lnvesLmenL, Lo compare prevlous lnvesLmenLs and analyse how
Lhese hlsLorlc pro[ecLs were developed.

! racucally every calculauon made by a valuer lnvolves compound
lnLeresL Lheory.

! 1he valuauon Lables are a serles of compound lnLeresL Lables whlch
can be descrlbed as varlauons around Lhe baslc compound lnLeresL
Lheme.
Slmple lnLeresL
! lf you have borrowed money, from a bank for a
morLgage or personal loan, you have Lo pay Lhem
lnLeresL.
! Slmple lnLeresL ls called slmple because lL lgnores Lhe
eecLs of compoundlng. 1he lnLeresL charge ls always
based on Lhe orlglnal prlnclpal, so lnLeresL on lnLeresL
ls noL lncluded. 1hls meLhod may be used Lo nd Lhe
lnLeresL charge for shorL-Lerm loans, where lgnorlng
compoundlng ls less of an lssue.
! Slmple lnLeresL ls calculaLed on a yearly basls
(annually) and depends on Lhe lnLeresL raLe. 1he raLe ls
oen glven per annum (p.a.) whlch means per year.
Compound lnLeresL
Compound lnLeresL arlses when lnLeresL ls added Lo Lhe
prlnclpal of a deposlL or loan, so LhaL, from LhaL momenL
on, Lhe lnLeresL LhaL has been added also earns lnLeresL.
1hls addluon of lnLeresL Lo Lhe prlnclpal ls called
compoundlng.

Lxample
A bank account with RM1000 initial principal and
20% interest per year would have a balance of
$1200 at the end of the rst year, $1440 at the end
of the second year, and so on.
Pow Lo calculaLe Slmple lnLeresL
l = rL
= rlnclple amounL
r = 8aLe of borrowlng or savlng
1 = ?ears

$,-./01
Sarah deposlLs 8M600 lnLo an accounL wlLh an lnLeresL raLe of 3 per
annum.

1. CalculaLe Lhe lnLeresL LhaL Sally recelves ln one year and nd
how much money she has ln Lhe accounL aer one year.
2. CalculaLe Lhe lnLeresL LhaL Sally recelves ln 10 years and how
much money she has ln Lhe accounL aer 10 years.

Lxerclse 1
1. !all lnLends Lo save 8M10,000 for a perlod of
3 years. Pe has 2 opuons:
a) Save wlLh an Ah Long who glves hlm 10
lnLeresL per annum buL on slmple
lnLeresL.
b) Save wlLh hls moLher ln-law who glves
hlm 7 lnLeresL per annum buL
compounded.
Advlse !all
lormula for Compound lnLeresL
!" = #" (1+l)^nL

lv = fuLure value
v = resenL value
l = lnLeresL raLe
n = number of years
L = number of umes compounded ln a year

%234 567.80- 34 -046 8419 567 (.68:; 65 <=

1esL agalnsL prevlous exerclse quesuon

Lxerclse 2
Ary lnLends Lo save 8M10,000 for a perlod of
12 years. Pe has 2 opuons:
a) Save wlLh an Ah Long who glves hlm 10
compounded lnLeresL per annum
b) Save wlLh hls moLher ln-law who glves
hlm 7 lnLeresL buL compounded every
6 monLhs.
Advlse !all

lormula for morLgage
M = P[i(1+i)^n]/[(1+i)^n -1]

M = Monthly payment
P = Principal amount
i = Interest rate per annum
n = Number of payments
MorLgage calculauon
Lim Eng intends to borrow RM500,000 from
Sukalend Bank. The bank o"ers him a loan
of RM500,000 with an interest rate of 7%
for a payback period of 25 years.
a. Calculate his annual repayment.
b. Calculate his monthly repayment.