Workshop 1: Time value of money

Solutions

1. FV =CF 0 ( 1+r ∙ t ) =1,000∙ 1+ 0.06 ∙ ( 6

12 )
=1,030

t 3
2. FV =CF 0 ∙ ( 1+r ) =1,000 ∙ ( 1.06 ) =1,191

y
3. ( 1+r m ) m =( 1+r y )

1
12
( 1.08 ) −1=0.643 %

−5
4. PV =CF 5 ( 1+8 % ) =681

5. 16.97=100 ∙ ( 1+r )−30

( )
1
( 1+r )30= 100 ; r= 100 30
−1=6.09 %
16.97 16.97

(
( )
)
240
0.06
1+ −1
( )
−240
12 0.06
6. 1,500 ∙ ∙ 1+ = 209,371
( )
0.06
12
12

or directly using the PV of annuity:

( ( )
)
−240
0.06
1− 1+
12
1,500 ∙ =209,371
( )
0.06
12

Alternatively, with equivalent monthly rate: ( 1+r )12=1.06 ; r =0.49 %

and 1,500 ∙ (
1−( 1+0.0049 )−240
0.0049
=212,076 )
Note that in question in the tutorial we have used annual annuities (of course it was
monthly and therefore the annuities were actually 12 x 20 = 240 monthly annuities.
Solutions of 20 annual annuities is the following:
PV (annuity) = Annuity x PVAF

( 1− ( 1+ r )−n )
[ ]
−20
1−( 1.06 )
PV ( Annuity )= A × =1,500 × = £ 17,205
i 0.06