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BASIC CONCEPT, INTERPOLATION, FVn = PV (1+i)n, FVn = PV (FVIF i%,n), FV =…
BASIC CONCEPT
ANNUITIES
FUTURE VALUE OF ORDINARY ANNUITIES
Using formula - FVA = PMT (1 + i )n - 1 / i
Using FVIFA table - FVA = PMT (FVIFA i%, n) table
FUTURE VALUE OF ANNUITIES DUE
Using formula - FVA = PMT (1 + i )n - 1 / i x (1+i)
Using table - FVA = PMT (FVIFA i%, n) X (1+i )
PRESENT VALUE OF ORDINARY ANNUITIES
Using table - PVA = PMT (PVIFA i%, n)
PRESENT VALUE OF ANNUITIES DUE
Using formula - PVA = PMT 1 - (1 + i )-n / i x (1+i)
Using PVIFA table -PVA = PMT (PVIFA i%, n) X (1 + i )
FUTURE VALUE
FUTURE VALUE OF A LUMP SUM
Using formula
Using table
FUTURE VALUE OF MULTIPLE CASH FLOW
By using table
By using formula
PRESENT VALUE
PRESENT VALUE OF A LUMP SUM
By using formula
PVn = FV [1 / (1+i)n ]
By using table
PVn = FV (PVIF i%,n)
PRESENT VALUE OF A MULTIPLE CASH FLOW
By using formula
By using table
INTERPOLATION
Process of determining the exact rate of interest (i) or the exact period of time (n).
= Interest (before) + (factor value (before) – calculated factor value) / (factor value (before) – factor value (after) x difference between interest after and before
FVn = PV (1+i)n
FVn = PV (FVIF i%,n)
FV = PV(FVIF i%,n-1)+PV(FVIF i%,n-2)+PV(FVIF i%,n-3)+ PV(FVIF i%,n-4)
FV = PV(FVIF 10%,3)+PV(FVIF 10%,2)+PV(FVIF 10%,1)+ PV(FVIF 10%,0)
FVn = PV (1+i) n-1 + PV (1+i) n-2 + PV (1+i) n-3 + PV (1+i) n-4
PV = [FV1 /(1+i)1]+[FV2/(1+i)2]+[FV3/(1+i)3]+[FV4/(1+i)4]
PV n = FV (PVIF 10%,1)+ FV (PVIF 10%,2)+ FV (PVIF 10%,3)+ FV (PVIF 10%,4)
CHAPTER 10: TIME VALUE OF MONEY
Time value of money is a ringgit received today is worth more than a Ringgit received tomorrow
sum of money invested today will grow to in a given period of time
what the value of a cash flow received in the future would be worth today (time 0)
found by taking the PV of that same stream and finding the FV of that lump sum using the appropriate rate of return
be found by taking the FV of the cash flow stream and discounting the lump sum at the appropriate discount rate
the cash flows are all equal and occur at regular intervals.