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01 - Time Value of Money
01 - Time Value of Money
FV(rate,nper,pmt,-PV,0)
=PV(rate,nper,pmt,-FV,0)
=PV(Rate,Nper,Pmt,-FV,0)
=FV(Rate,Nper,PMT,-PV,0)
Annuity Payment for a Future Value
Ex.
You wish to receive Rs 10,000 at the end of 10 years
5
from your fixed deposit in a bank. The interest rate is 10
percent. How much payment should you make each
year in your fixed deposit account to accumulate Rs
10,000 after five years?
Future value (Rs) 10,000 10,000
Number of periods 10 15
Interest rate 10% 10%
Present value 0 0
Annual payment (Rs) 627
=PMT(Rate,NPer,PV,FV,Type)
=RATE(NPer,PMT, PV,FV,Type,guess)
=Nper(Rate,Pmt,0,-FV,0)
=PV(Rate,Nper,Pmt,-FV,1)
Present Value of Uneven cash flows
Ex. In this example, we show the calculation of NPV when
8 the cash flows are uneven.
Interest rate 12%
Year 0 1
Cash flows -10,000 5,000
Present value 549
=NPV(rate,value1,…)+value 0
=IRR(values)
Multiperiod compounding
Ex. This example shows the calculation of the effective
10 interest rate under multiperiod compounding. Investment (Rs) 1,000 1,000
Simple interest rate 12% 12%
Compounding/year 1 2
Years 1 1
Future value (Rs) 1,120.00 1,123.60
Efective interest rate 12.00% 12.36%
ng examples illustrates this.
on for one problem; you solve
Excel has several built-in functions for soving the time value of money problems. The following examples illustrates
0 0 0
-10,000 -10,000 -10,000
3,600 1,500 2,000
5% 10% 15%
(Rs 000)
2 3 4 5
4,000 2,000 1,500 915