PERSONAL AND BUSINESS

FINANCE
FINANCIAL MATH
MAIN CONCEPTS
Present Value Future Value
FVn
PV = FV = P V x (1+r)n
(1+r)n
P V= P re s e nt va lue
FV= Future va lue FV= Future va lue P V= P re s e nt va lue
r = Inte re s t ra te r = Inte re s t ra te r = Inte re s t ra te
n = Numbe r of pe riods
 FV
EXAMPLE
FV = PV x (1+r)n
Amanda has $800 dollars, and
she saves it in a savings account 5
which gives her an annual 6% of FV = 800 x (1+6%)
interests. She wants to know
how much money she would
have after 5 years in her savings
FV = $ 1,070.58
account.
$ 1,070.58

P V= $800

0 1 2 3 4 5 6 7 8
COMPOUNDING AND
DISCOUNTING
 PRACTICE
FINANCIAL MATH EXERCISES
 FV FV = PV x (1+r)n
EXAMPLE Tips: FV =
You invested $200,000 in a bank I. Two calculations
for 5 years. When you made the FV = $ 1,070.58
II. Periods are quarters
deposit, the bank paid 16.8%
compounded quarterly. Three
and a half years after, the interest
FV1= 200,000 (1+(0.168/4))^14 = $355,777.16
paid changed to 14%
compounded monthly. Calculate
the final amount at the end of the FV2= 355,777.16 (1+(.14/12))^18= $438,381.27
5 years.
 (PV x r) (PV x r)
CF CF =
1 - (1+r) -n P=
1 - (1+r) -n

EXAMPLE Tips:
The owner of a bakery bought an I. CF = P (payments)
oven of $83,675. He is going to
pay this oven with one payment II. Initial payment does not cause interest
four months from now of III. Payment as discounting, not compunding
$20,000 and the rest in 15
monthly payments starting one
month after the first payment
(the one for $20,000). If the P = $83,675-$20,000 = $63,675.00
interest rate is 24% annual CF
compounded monthly, calculate
CF = $4,955.54
the value of each payment.
 FINANCIAL n
{ (1 + r) -1}
MATH FV = CF x x (1 + r)
PRACTICE r
A company must invest during
the following 12 years, at the
beginning of each month,
$150,000 in a fund for the
depreciation of its machinery.
What will be the amount in this
depreciation fund after 12 years, FV = $40,635,832.11
if it has been producing 9.6%
compounded monthly?
 FINANCIAL
MATH FV = P V x e i t
PRACTICE
FV = 24,780 x e[(0.147)*(8/12)]
Find the amount and compound
interest of $24,780 that were
invested for eight months at an FV = $27,331.42
annual interest rate of 14.7%
compounded continuously.
I = 27331.42-24780 = $2,551.42
 FINANCIAL CF 1
MATH PV = 1- n
x (1 + r)
PRACTICE r (1+r)

A student rents an apartment for

$360 monthly, rent is paid in
advance (at the beginning of the
month), what is the present value
of the rent for the entire year if PV = $ 4,203.73
the interest rate is 6% annual
compounded monthly?
 FINANCIAL 1
MATH CF = (PV x r) ÷ 1-
PRACTICE (1+r)n
In October, the home store offers
for sale a television at $ 14,990
payable in six equal monthly
installments with an effective
interest rate of 3% monthly. If
you buy one of these devices in CF = $2,767.12
October, what is the value of
each fixed payment? Suppose
you start paying the TV at the
end of October.
 FINANCIAL
MATH
PRACTICE
As a measure to protect his assets
against inflation, Lucas invested
in Centenarios (Mexican gold
billion coin) at the beginning of
April 1998. Each coin had a
price of $3,350. As for early June
2006, he sold each coin for
$8,740. Determine if it was a
good investment, knowing the
inflation rate was 73.094%.
Calculate the annual real rate.
QUESTIONS?