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Future Value
Present Value
FV PV * (1 R / m)
n*m
Where:
FV:
Answer
Annual Compounding 1169.86
Semi-annual compounding 1171.66
FV PV * (1 R / m)
Here
(1 R / m)
n*m
n*m
Is termed as future value interest factor. The value of this can be directly
taken from the following table, by looking at R/m rate against n*m period
1%
2%
3%
4%
5%
1.010
1.020
1.030
1.040
1.050
1.020
1.040
1.061
1.082
1.103
1.030
1.061
1.093
1.125
1.158
1.041
1.082
1.126
1.170
1.216
1.051
1.104
1.159
1.217
1.276
1.062
1.126
1.194
1.265
1.340
1.072
1.149
1.230
1.316
1.407
1.083
1.172
1.267
1.369
1.477
1.094
1.195
1.305
1.423
1.551
10
1.105
1.219
1.344
1.480
1.629
11
1.116
1.243
1.384
1.539
1.710
12
1.127
1.268
1.426
1.601
1.796
FV
PV
n*m
(1 R / m)
Where:
FV:
Answer
854.80
FV
PV
n*m
(1 R / m)
Here the fraction
1
n*m
(1 R / m)
0.50%
1%
1.50%
2%
2.50%
3%
3.50%
0.995
0.99
0.9852
0.9803
0.9756
0.9708
0.9661
0.99
0.9802
0.9706
0.9611
0.9518
0.9425
0.9335
0.9851
0.9705
0.9563
0.9423
0.9285
0.9151
0.9019
0.9802
0.9609
0.9421
0.9238
0.9059
0.8884
0.8714
0.9753
0.9514
0.9282
0.9057
0.8838
0.8626
0.8419
0.9705
0.942
0.9145
0.8879
0.8622
0.8374
0.8135
0.9656
0.9327
0.901
0.8705
0.8412
0.813
0.7859
0.9608
0.9234
0.8877
0.8534
0.8207
0.7894
0.7594
0.9561
0.9143
0.8745
0.8367
0.8007
0.7664
0.7337
10
0.9513
0.9052
0.8616
0.8203
0.7811
0.744
0.7089
11
0.9466
0.8963
0.8489
0.8042
0.7621
0.7224
0.6849
12
0.9419
0.8874
0.8363
0.7884
0.7435
0.7013
0.6617
So the present value of all the three payments right now is:
A
A
A
PVA
1*m
2*m
3*m
(1 R / m)
(1 R / m)
(1 R / m)
Geometric Progression
Sum of a geometric series of n numbers.
S= a + aq1 + aq2 . aqn -1
---- 1
a is the first term
q is the ratio
n is the number of terms
Sq= aq1 + aq2 . + aqn -1 +aqn -----------2
Equation 1- equation 2 Gives
S(1-q) = a - aqn
1
2
(1 .03) (1 .03) (1 .03)3
n=number of terms =3
S = 22628.89
Answer
Using tables
22632
Using formula
22,628.90
A
A
A
PVA
1*m
2*m
(1 R / m)
(1 R / m)
(1 R / m)3*m
1
1
1
1*m
2*m
(1 R / m)
(1 R / m)
(1 R / m) 3*m
Is termed as present value annuity factor and can be directly seen from the
table for R/m rate for a period of 3 years.
0.50%
1%
1.50%
2%
2.50%
3%
0.995
0.99
0.9852
0.9803
0.9756
0.9708
1.985
1.9703
1.9558
1.9415
1.9274
1.9134
2.9702
2.9409
2.9122
2.8838
2.856
2.8286
3.9504
3.9019
3.8543
3.8077
3.7619
3.717
4.9258
4.8534
4.7826
4.7134
4.6458
4.5797
5.8963
5.7954
5.6971
5.6014
5.5081
5.4171
6.862
6.7281
6.5982
6.4719
6.3493
6.2302
7.8229
7.6516
7.4859
7.3254
7.1701
7.0196
8.779
8.566
8.3605
8.1622
7.9708
7.7861
10
9.7304
9.4713
9.2221
8.9825
8.752
8.5302
11
10.677
10.367
10.071
9.7868
9.5142
9.2526
12
11.618
11.255
10.907
10.575
10.257
9.954
So the present value of all the three payments at the end of three years is:
FVA A * (1 R / m)
2*m
A * (1 R / m)
1*m
A=8000
q=1+r
n=3
Answer
Using tables
24,720
Using formula
24,727.20
FVA A * (1 R / m)
2*m
A * (1 R / m)
1*m
(1 R / m)
2*m
(1 R / m)
1*m
(1 R / m)
0*m
Is termed as future value annuity factor. The value of this can directly
be seen from future value annuity table by looking for R/m rate along
with 3 years time period.
Period
1%
2%
3%
4%
5%
1.000
1.000
1.000
1.000
1.000
2.010
2.020
2.030
2.040
2.050
3.030
3.060
3.091
3.122
3.153
4.060
4.122
4.184
4.246
4.310
5.101
5.204
5.309
5.416
5.526
6.152
6.308
6.468
6.633
6.802
7.214
7.434
7.662
7.898
8.142
8.286
8.583
8.892
9.214
9.549
9.369
9.755
10.159
10.583
11.027
10
10.462
10.950
11.464
12.006
12.578
11
11.567
12.169
12.808
13.486
14.207
12
12.683
13.412
14.192
15.026
15.917
25050.93
20%
Answer
Present value of annuity is 1,16,940
So Mr. Swamy should choose option (b)
Answer
27012.96
Answer
(a) Present Value of annuity is 8537.76
(b) Present value of annuity is 9475.62
Question
If a person deposits Rs.1000 on an
account that pays him 10% for the first five
years and 13% for the following eight
years, what is the annual compound rate
of interest for the 13 year period
11.83%
EFFECTIVE RATE
Effective rate of interest is that annual rate
which produces the same effect as that
produced by nominal rate when
compounded under less than annual time
periods.
9.2025%
Question
If the nominal rate of interest is 12% per
annum calculate the effective rate of
interest when a sum is compounded (a)
annually (b) semi-annually (c ) quarterly
12%
12.36%
12.5509%
Question
If the nominal rate of interest compounded
quarterly results in effective rate of 18%,
then calculate the nominal rate of interest.
16.8987%
Question
City Finance Ltd. has various deposit
schemes which offer the same effective
rate of interest as 10% per annum
compounded half yearly. If you save
Rs.100 at the beginning of every month
with CFL in a monthly recurring deposit
scheme which has a maturity of three
years, then what will be the maturity value
at the end of three years?
Rs.4202.21
Rule of 72
The period within which the amount will be
doubled is obtained by dividing 72 by the
rate of interest.
Question
As per the rule of 72 in how many years
will the amount deposited today at an
interest rate of 16% double?
4.5YEARS
Rule of 69
Doubling period = 0.35+69/ Interest rate
What is the rate of interest when the
doubling period is 7 years 4 months?
9.88%
11.497 yrs
PERPETUITY
A
PVP
k