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Y0 10,000.00
Y1 11,000.00 (10,000 x 1.1)
Y2 12,100.00 (10,000 x 1.1 x 1.1)
Y3 13,310.00 (10,000 x 1.1 x 1.1 x 1.1)
When we compute cash flows, always use the stated interest rate
Stated rate = sabi ni debtor na babayaran nya
For computation of present value factor, always use the market interest rate/effective interest rate
PV represents the fair value on initial date (based on market prices)
Example:
Face amount 100,000.00 Cash flows: End of
Stated rate 10% Y1 Y2
Effective rate 12% Principal
Period 3 years (annually) Interest (stated) 10,000.00 10,000.00
Projected cash flows 10,000.00 10,000.00
PVF (effective) 0.89 0.80
PV of cash flows 8,928.57 7,971.94
Total PV
(10,000 x 0.89) + (10,000 x 0.8) + (10,000 x 0.71)
Factor out 10,000 OR Cash flow
10,000 x (0.89 + 0.8 + 0.71) PV of principal 100,000.00
10,000 x PVFOA (GT) PV of interest 10,000.00
Step 1:
Compute PVF of 1
1.12 dibay dibay = 3 times
Step 2:
Get the PV of Principal (DO NOT PRESS EQUAL)
0.7118 x 100,000 M+
Step 3:
Get the PVFOA
Press GT
Step 4:
Get PV of interest
2.4018 x 10,000 M+
Step 5:
Get total PV
MR
3 raised to 4
3 x x = (squared)
= (cube)
End of
Y3
100,000.00
10,000.00
110,000.00
0.71
78,295.83
95,196.34
PVF PV
0.71 71,178.02
2.40 24,018.31
95,196.34
0.7118
71,178.00
2.4018
24,108.00
95,196.34