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CH05 PPT
CH05 PPT
Chapter 5
Interest
Rates
1
FV annuity C 1 r 1
n
r
r 0.004868
$615.47 pe r month.
We can also compute this result using a financial calculator
or spreadsheet:
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Example 5.1 Valuing Monthly Cash
Flows (6 of 6)
FV (annuity) = C × 1r [(1+ r )n - 1]
FV (annuity) $150,000
C $369.64 per month
1 1
[(1 r )n 1] [(1.004074)240 1]
r 0.004074
Excel Formula:
=PMT(RATE,NPER,PV,FV)=PMT(0.004074,240,0,150000)
APR
Interest Rate per Compounding Period
m
(m number of compounding periodsper year)
12
0.06
Monthly 1 1 6.1678%
12
365
Daily 0.06
1 1 6.1831%
365
1 1
PV 4000 1 $170,321.27
0.005 1.00548
Month: 0 1 2 3 72
Execute:
1 1
Ba la nce with 24 months re ma ining $590.50 1
0.005625 1.00562524
$13,222.32
1 1
Balance with 240 months remaining $1,049.33 1 $161,694.73
0.004 1.004240
1 + Nominal rate
Growth in Purchasing Power 1 Real Rate
1 + Inflation rate
Growth of Money
Growth of Prices
0.0064 0.0140
0.0075 or 0.75%.
1.0140
C1 C2 CN
PV = + + ... +
1 + r1 (1 + r2 )2 (1 + rN )N
Term Date
Years January 2017
1 0.89%
2 1.22%
3 1.50%
$1000
PV $900.90
1.11
1
$15,863.08
PV $692.94
1.11
30
$10,000
For the one-year loan: PV 1
$9,345.79
1.07
$63,411.81
For the 25-year loan: PV 25
$11,683.57
1.07
$110
PV $101.85
1.08
1