FV= C0(1+i)^N

Q1: Time Value of money is based on the idea that later a cash flow is recieved the higher its present value
PV 1
Interest 9%
Number of Per 2
FV $1.19

Q2: How much is 1$ that we will recieve in two years worth today? 9%
PV=CF/(1+i)^N
FV 1
N 2
i 9%
PV ($0.842)
When finding the present value, the ineterst rate (9%) is also called discount rate

#3 the process of using an interest rate to find the present value= Discount Rate

Effective Annual Interest Q3 Present value of a Perpetuity

EAR=(1+r/m)^(m-1) PV of perpetuity = pmt/i
PV 0
Annual = Once a year i 10%
Semi annual (2x) pmt $ 100.00
Quiatrely (4x) $ 1,000.00

Q4 Growing Perpetuity
pmt/(i-g) PMT 100
i Discount Rate 10%
g constant growing rate 2%
PV0 $ 1,250.00
Q5
Future Value of an Annuity
FVA = pmt((1+i)^N-1)/i)

PMT 100
I 10%
N 3
($331.00)
Q6
PVA Present Value of Annuity
PVA=pmt( 1-(1/1+i)^n))/i
n 3
i 0.1
PMT 100
PV0 ($248.69)

Effective Rate refers to the rate calculated after adjusting for the number of times compounded during a year

Q7
Investing For College
PV ($3,973.11)
FV 20000
I 8%
N 21

Q8
How long must one wait for aninitial investment of 1000 to triple in value if the investment ears 8% componded a
First Step: Find number of Periods (n)

PV -1000
FV 3000
i 8%
NPER 14.27491459

Q9 FINDING FV
IRA
Max contribution 2000 at the end of each year for the nect 10 years
If he earns 10% interest how much will IRA be at the end of 10th year?
Find FV
FV $31,874.85
PMT 2000
i 10%
NPER 10

Q10 FINDING RATE

Caluclate interest on loan
Carol borrows 30 000. 6 year loan, the bank requires annual end of year payments of 5,878.05$
What is the interest rate on the loan?

PV 30000
PMT $ (5,878.05)
i 4.83%
N 6
gher its present value
ded during a year

vestment ears 8% componded annualy?

s of 5,878.05$