TIME VALUE OF MONEY

Mixed Streams

Present Value of a
Mixed Stream
Formula:
PV= FV x (1+i)

:Example
Julie Miller will receive the set of cash flows
below. What is the Present Value at a
discount rate of 10%.
end of year 1: 600.00
800.00 :2
400.00 :3
500.00 :4
100.00 :5

10%
0

600
PV0

800

400

500 100

10%

600

800

545.45
PV=
600 x (1+.10) 1
16. 661
PV=
800 x (1+.10)
300.53
PV-=
400 x (1+.10)
341.51
PV= 500 x (1+.10)
62.09
PV= 100 x (1.10)

400

500

PV0 of the Mixed Flow= 910.74 1

100

Future Value of Mixed Stream

Formula:
FV= PV x (1+i)

 Example:
Julie Company, a shoe manufacturer, expects
to receive the following stream of cash flows
over the next 5 years from one of its small
customers.
End of year 1: 10 500.00
2: 13 000.00
3: 11 700.00
4: 14 000.00
5: 12 200.00
Julie expects to earn 8% on its investments.

FUTURE
VALUE
<1x3>

(1+i)

(4)

(3)

NO. OF
CASH
YEARS
FLOW
EARNING
INT.
(2)
(1)

YEAR

280.00 14

1.360

500.00 10

380.00 16

1.260

000.00 13

642.20 13

1.166

700.00 11

120.00 15

1.080

000.00 14

200.00 12

1.000

200.00 12

Future Value of Mixed stream

71 622.20

Compounding
more frequently
than
Annually

 SEMIANNUAL COMPOUNDING
QUARTERLY COMPOUNDING
MONTHLY COMPOUNDING
WEEKLY COMPOUNDING
DAILY COMPOUNDING
CONTINUOUSLY COMPOUNDING

:Formula
FVn= PV0(1 + [i/m])mn
FVn : FV at the end of year n
PV0: PV of the Cash Flow today
m

: compounding periods per year

: number of years

: annual interest rate

 Julie Miller has decided to invest

200,000 in savings account paying 8%
interest compounded . . ,

Semiannually
FUTURE
VALUE AT
END OF
PERIOD

FUTURE VALUE
CALCULATION

BEGINNING
PRINCIPAL

PERIOD

208,000

200,000 x
(1+.04)=

200,000

6 Months

216,320

208,000 x
(1+.04)=

208,000

months 12

224,973

= x (1+.04) 216,320

216,320

months 18

224,972 x
(1+.04)=

224,972

months 24

233,972

 Compounding Semiannually
FVn= PV0(1 + [i/m])mn
FVn= 200,000 [1+ (0.08/2)
FVn= 200,000(1+0.04)
FVn= 200,000(1.16985856)

FVn= 233,972

Quarterly
FUTURE VALUE
AT END OF
PERIOD

FUTURE VALUE
CALCULATION

BEGINNING
PRINCIPAL

PERIOD

204,000

=x (1+.02) 200,000

200,000

3 months

208,080

=x(1+.02) 204,000

208,080

6 months

212,242

=x (1+.02) 208,080

212,242

9 months

216,486

=x(1+.02) 212,242

216,486

12 months

220,816

=x(1+.02) 216,486

220,816

15 months

225,232

=x(1+.02) 220,816

225,232

18 months

229,737

=x(1+.02) 225,232

229,737

21 months

234,332

229,737 x
(1+.02)=

229,737

24 months

 Compounding Quarterly
FVn= PV0(1 + [i/m])mn
FVn= 200,000 [1+ (0.08/4)
FVn= 200,000(1+0.02)
FVn= 200,000(1.171659381)

FVn= 234,332

Compounding period
Quarterl
y

Semiannual Annual

End of
year

216,486

216,320

216,000

234,332

233,972

233,280