Wednesday

May 4, 2016
Posted by **Anonymous** on Friday, December 18, 2009 at 9:38pm.

- Finance -
**Ms. Sue**, Friday, December 18, 2009 at 11:21pmYour text materials are the best source of this information.

- Finance -
**Abacus**, Monday, December 21, 2009 at 3:29amDESCRIPTION OE THE FOUR TIME VALUE OF MONEY CONCEPTS

Present value is the value of a cash flow today.

Usage when a single cash flow is to be discounted to today’s value.

Formula PV = FV / ((1+i) ^n))

Where, PV = Present value

FV = Future Value

i= interest rate per compounding period

n=period

PVIF = Present Value Interest Factor = (1/ ((1+i) ^n))

Example Mr A would receive $1,100 from Mr B after 1 year. Find the present value of the cash flow if Mr A’s interest rate is 10% p.a.

PV = 1100 / (1.1^1) = $1,000

Thus, the present value of cash flow to be received after 1 year is $1,000 today.

Present value of annuity is the value of a series of equal cash flow received in equidistant period, today.

Usage when a series of cash flow is to be discounted to today’s value.

Formula PV = (a/i) (1-(1/ ((1+i) ^n)))

Where, PV = Present value

a = equal cash flow (annuity)

i= interest rate per compounding period

n=no. of annuities

PVIFA = Present Value interest factor of annuity = (1/i) (1-(1/ ((1+i) ^n)))

If cash flow occurs at the beginning of period then the above formula is to be multiplied by (1+i)

Example Mr A would receive $1,000 from Mr B every year for 5 years. Find the present value of the cash flow if Mr A’s interest rate is 10% p.a.

PV = (1000/.1)(1-(1/((1.1^5))) = $3,791

Thus, the present value of cash flow to be received every year for 5 years is $3,791 today.

Future value is the value of a cash flow in future.

Usage when value of a single cash flow is to be computed in future’s date.

Formula FV = PV ((1+i) ^n))

Where, PV = Present value

FV = Future Value

i= interest rate per compounding period

n=period

FVIF = Future Value Interest Factor = ((1+i) ^n))

Example Mr A would receive $1,000 from Mr B today. Find the future value of the cash flow if Mr A’s interest rate is 10% p.a.

FV = 1000 * (1.1^1) = $1,100

Thus, the future value of cash flow after 1 year is $1,100.

Future value of annuity is the value of a series of equal cash flow received in equidistant period, on a future date.

Usage when future value is to be computed for a series of cash flow.

Formula FV = (a/i) (((1+i) ^n)-1)

Where, FV = Future value

a = equal cash flow (annuity)

i= interest rate per compounding period

n=no. of annuities

FVIFA = Present Value interest factor of annuity = (1/i) (((1+i) ^n)-1)))

If cash flow occurs at the beginning of period then the above formula is to be multiplied by (1+i)

Example Mr A would receive $1,000 from Mr B every year for 5 years. Find the future value of the cash flow if Mr A’s interest rate is 10% p.a.

FV = (1000/.1) ((1.1^5)-1)) = $6,105

Thus, the future value of cash flow to be received every year for 5 years is $6,105. - Finance -
**Jazmine**, Wednesday, October 24, 2012 at 12:49pmSolve, using the Rule of 72: rate =6%, pv=$7,000, fv= $56,000. Solve for years.