Prepared By: Amit Shankar Choudhary, IFIM Business School, Bangalore 560100 India.

E Mail: amit.shankar@ifimbschool.com

N
u
m
b
e
r

Time Value of
Money Formula
For:

Annual Compounding
Compounded (m) Times per
Year
Continuous
Compounding
1
Future Value of a
Lump Sum. ( FVIFi,n )
) + 1 ( V P = V F
n
i
|
¹
|

\
|
m
i
nm
+ 1 PV = FV ) PV( = FV
in
e
2
Present Value of a
Lump Sum. ( PVIFi,n )
) + 1 ( FV = PV
-n
i
|
¹
|

\
|
m
i
nm
+ 1 FV = PV
-
) FV( = PV
-in
e
3
Future Value of an
Annuity. ( FVIFAi,n )

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

( )

− +
=
m i
m i
PMT
nm
/
1 ) / ( 1
FVA

4
Present Value of an
Annuity. ( PVIFAi,n )

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

( )

m i
m i
PMT
nm
/
) / ( + 1 - 1
= PVA
-


5
Present Value of a
Perpetuity.
i
PMT
= perpetuity PV
] 1 ) 1 [(
PV
/ 1
perpetuity
− +
=
m
i
PMT


6
Effective Annual
Rate given the APR.
APR = EAR 1 - + 1 = EAR |
¹
|

\
|
m
i
m
1 - = EAR
e
i

7

The length of time
required for a PV to
grow to a FV.

) + (1 ln
(FV/PV) ln
=
i
n
( )
m
i
m
n
+ 1 ln *
FV/PV) ( ln
=

FV/PV) ( ln *
1
=
i
n
8

The APR required for
a PV to grow to a
FV.

1 -
PV
FV
=
/ 1
|
¹
|

\
|
n
i

|
¹
|

\
|
1 -
PV
FV
* =
) /( 1 nm
m i (FV/PV) ln *
1
=
n
i
9

The length of time
required for a series
of PMT’s to grow to
a future amount
(FVA).

) + (1 ln
1 +
) (FVA)(
ln
=
i
PMT
i
n

|
¹
|

\
|

|
¹
|

\
|
|
¹
|

\
|
m
i
m
i
m
PMT m
i
n
+ 1 ln *
+
FVA
ln
=
10
The length of time
required for a series
of PMT’s to exhaust
a specific present
amount (PVA).
) 1 ( ln
) )( PVA (
1 ln
i
PMT
i
n
+


− = ,

for PVA(i) < PMT

|
¹
|

\
|
+


− =
m
i
m
PMT
m i
n
1 ln *
) / )( PVA (
1 ln
,

for PVA(i/m) < PMT


Legend
i = the nominal or Annual Percentage Rate n = the number of periods
m = the number of compounding periods per year EAR = the Effective Annual Rate
ln = the natural logarithm, the logarithm to the base e e = the base of the natural logarithm ≈ 2.71828
PMT = the periodic payment or cash flow Perpetuity = an infinite annuity