CHAPTER 10: TIME VALUE OF MONEY

Time value of money quantifies the value of a Ringgit through time

Basic concept

Present value

Annuities

Future value

Future Value of a Multiple Cash Flow

Future value of lump sum

Present value of lump sum

Present Value of a Multiple Cash Flow

Future value of Ordinary Annuities

Future value of Annuities Due

Present Value of Ordinary Annuities

Present value of Annuities Due

PVA = PMT (PVIFA i%, n)

determines the amount that a sum of money invested today will grow to in a given period of time

A cash flow stream is a finite set of payments that an investor will receive or invest over time.

Future Value Table
FVn = PV (FVIF i%,n)

Formula
FVn = PV (1+i)n

determine what the value of a cash flow received in the future would be worth today (time 0)

Formula
PVn = FV [1 / (1+i)n ]

Future Value Table
PVn = FV (PVIF i%,n)

FV of the cash flow stream and discounting the lump sum at the appropriate discount rate

Formula
PV = FV1 + FV2 / (1+i)1 (1+i)2

Future Value Table
PV n = FV (PVIF 10%,1)+ FV (PVIF 10%,2)

Formula
FVn = PV (1+i) n-1 + PV (1+i) n-2

Future Value Table
FV = PV(FVIF i%,n-1)+PV(FVIF i%,n-2)

Formula
(1 + i )n - 1
FVA = PMT -----------------
i

FVIFA Table
FVA = PMT (FVIFA i%, n)

Formula
(1 + i )n - 1
FVA = PMT ----------------- X (1+i )
i

FVIFA Table
FVA = PMT (FVIFA i%, n) X (1+i )

Formula
1 - (1 + i )-n
PVA = PMT ----------------- X (1 + i )
i

PVIFA Table
PVA = PMT (PVIFA i%, n) X (1 + i )

Different Compounding period

image

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


NUR ARISSA BINTI MOHAMAD 2019416444 KBA2462A FIN420