Scribd
Upload
14 views5 pages

Time Value of Money

The document discusses concepts related to time value of money including compound interest, present value, future value, discount factors, and compounding factors. It provides examples of calculations for present value, future value, and accumulated value of investments over time at different interest rates.

Uploaded by

rahulbalu6
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
14 views5 pages

Time Value of Money

The document discusses concepts related to time value of money including compound interest, present value, future value, discount factors, and compounding factors. It provides examples of calculations for present value, future value, and accumulated value of investments over time at different interest rates.

Uploaded by

rahulbalu6
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 5

TIME VALUE OF MONEY

COMPOUNDING.INTERST

SIMPLE INTEREST

PRESENT VALUE= F.V./[(1+r)^n]- single flow

FUTURE VALUE= P.V.[(1+r)^n]- single flow

PRESENT VALUE ANNUITY

FUTURE VALUE OF ANNUITY


r or k or i = rate of interest

n= no of years to maturity

1. MUKESH has invested RS 10,000 in bank certificate of Deposit for 2 Years at 8 Percent
interest . How much will he receive at maturity ?
Ans

FUTURE VALUE= P.V.[(1+r)^n]

=10,000[(1+0.08)^2]

= 11 664

2. A bank promises to give you RS .10,000 after 3 years at the rate of 10 % interest . How
much should you deposits today.
PRESENT VALUE= F.V./[(1+r)^n]

ANS

=10,000/[(1+0.10)^3]
=7513
Q Ram invests Rs 1500 at the beginning of the first year(or in other words at the
end of 0th year); Rs. 2,000 at the beginning of the second year and Rs 5,000 at the
beginning of third year at a rate of interest 5% per annum. What will be the
accumulated value of all these cash outflows at the end of the third year?

Ans P.V. F.V.


1. 1500 1500[(1+0.05)^3]=
2. 2000 2000[(1+0.05)^2]=
3. 5000 5000[(1+0.05)^1]=

____________

9191

Q A person invested certain amount of money in a project. The project generates


an inflow of Rs 1500 at the end of the first year, Rs 2,000 at the end of the second
year and Rs 4,000 at the end of the third year. What is the present value of these
future cash inflows given that the rate of interest is 5%?

ANS

F.V. P.V.
1. 1500 1500 /[(1+0.05)^1]
2. 2000 2000/ [(1+0.05)^2]
3. 4000 4000/ [(1+0.05)^3]

__________
6698

(a) PRESENT VALUE : A present value is the discounted value of one or more future cash flows
.
(b) FUTURE VALUE : A future value is the compounded value of a present value .
(c) DISCOUNT FACTOR : the discount factor is the present value of a rupee received in the
future .
COMPOUNDING FACTOR : The compounding factor is the future value a rupee .

Q. Suppose a particular investment opportunity provides us Rs 2000 at the end of three years. We need to find out the
present value of this cash inflow of Rs 2000 that is got at the end of three years with the interest rate being 5%.
ANS- 1728

Q A bank offers to lend you Rs, 1,00,000 if you sign a note to repay Rs . 1,61,050 at
the end of five years . What rate of interest are you paying ?

F.V.= P.V.[(1+r)^5]
161050=1,00,000 (1+r)^5

1.61050= (1+r)^5

1.61050- 12times square root


1.00011635068
Then minus 1
0.00011635068
Divide by 5
+1
X= 12 times
1.100003466= (1+r)
1.10-1 =r
0.10 =r
R=10%

Q 2,000 is invested at annual rate of interest of 10%. What is the amount after two years if
compounding is done (a) Annually (b) Semi-annually (c) Quarterly (d) monthly

Ans

Annually

p.v. = 2,000

F.V.= 2,000[(1+0.10)^2]

= 2420

Semi Annually

F.V.= FUTURE VALUE= P.V.[(1+(r/2)^n*2]

= 2000 [(1+{0.10/2})^2*2]

=2431
Quarterly

F.V.= FUTURE VALUE= P.V.[(1+(r/4)^n*4]

= 2000 [(1+{0.10/4})^2*4]

= 2436.81

Monthly

F.V.= FUTURE VALUE= P.V.[(1+(r/12)^n*12]

= 2000 [(1+{0.10/12})^2*12]

= 2440.78

Q. If one invest Rs.25,000 at the end of each year at the rate of 8% p.a. to what amount would
this investment grow after 5 years.

Ans. F.V.A= A{((1+r)^n)-1)/r}

=25,000{((1+0.08)^5)-1)/0.08}

= 146665

OR

1.25000 F.V.= 25000(1+0.08)^4=34012

2.25000 =25000(1+0.08)^3= 31492

3.25000 =25000(1+0.08)^2= 29160

4.25000 =25000(1+0.08)^1= 27000

5.25000

____________

121664+ INVESTED 25000=146664

DEPOSIT AT THE BEGINNING OF THE YEAR

◼ F..V.A= P.V.(((1+r)^n-1)/r)(1+r)
❖ Suppose we deposit Rs.30,000 per year in PPF for 30 years at the Begining of year. What
will be accumulated amt in PPF at the end of 30 years if the Interest rate is 11%?

=6627395

❖ Suppose we deposit Rs.30,000 per year in PPF for 30 years at the end of year. What will
be accumulated amt in PPF at the end of 30 years if the Interest rate is 11%?
=5970626
• What is the present value of an ordinary annuity of Rs.5,000 p.a. when the interest rate is
7% and maturity period is 8 years.

ANS P.V.A =A [ ((1+r)^n)-1)/(r(1+r)^n)]

=5,000[ (1+0.07)^8)-1)/(0.07(1+0.07)^8)]

= 29856.49

◼ A person invested certain amount of money in a project. The project generates an inflow of
Rs 2000 each at the end of first, second and third year. What is the present value of this
annuity of Rs 2000 at 5%?

ANS 5443

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy