Professional Documents
Culture Documents
Future Value
Present Value
Annuities
Rates of Return
Amortization
5-1
Time Lines
0
CF1
CF2
CF3
I%
CF0
I%
2
100
100
100
3
100
5-3
I%
100
75
50
5-4
10%
100
FV = ?
5-5
After 1 year:
FV1 = PV(1 + I) = $100(1.10) = $110.00
After 2 years:
FV2 = PV(1 + I)2 = $100(1.10)2 = $121.00
After 3 years:
FV3 = PV(1 + I)3 = $100(1.10)3 = $133.10
5-6
INPUTS
OUTPUT
10
-100
I/YR
PV
PMT
FV
133.10
5-7
10%
PV = ?
100
5-8
PV
5-9
INPUTS
OUTPUT
10
I/YR
PV
100
PMT
FV
-75.13
5-10
INPUTS
3
N
OUTPUT
I/YR
-100
125.97
PV
PMT
FV
8
5-11
INPUTS
N
OUTPUT
20
-1
I/YR
PV
PMT
FV
3.8
5-12
I%
PMT
PMT
PMT
PMT
PMT
Annuity Due
0
PMT
I%
5-13
INPUTS
OUTPUT
10
-100
I/YR
PV
PMT
FV
331
5-14
INPUTS
OUTPUT
10
I/YR
PV
100
PMT
FV
-248.69
5-15
OUTPUT
10
-100
I/YR
PV
PMT
FV
364.10
5-16
OUTPUT
10
I/YR
PV
100
PMT
FV
-273.55
5-17
5-18
10-year annuity
25-year annuity
Perpetuity
INPUTS
OUTPUT
45
12
-1095
I/YR
PV
PMT
FV
1,487,262
5-21
INPUTS
OUTPUT
25
12
-1095
I/YR
PV
PMT
FV
146,001
5-22
INPUTS
OUTPUT
25
12
I/YR
PV
1,487,262
PMT
FV
-11,154.42
5-23
300
300
-50
90.91
247.93
225.39
-34.15
530.08 = PV
5-24
CF
CF
CF
CF
CF
=0
= 100
= 300
= 300
= -50
10%
100
133.10
5%
1
2
2
4
3
6
134.01
Classifications of Interest
Rates
Nominal rate (I ) also called the quoted
NOM
5-27
Classifications of Interest
Rates
Effective (or equivalent) annual rate (EAR
= EFF%) the annual rate of interest
actually being earned, accounting for
compounding.
= ( 1 + INOM/M )M 1
= ( 1 + 0.10/2 )2 1 = 10.25%
5-29
10.00%
EARQUARTERLY
10.38%
EARMONTHLY
10.47%
EARDAILY (365)
10.52%
5-30
I NOM
FVN PV 1
MN
23
0.10
FV3S $100 1
6
FV3S $100(1.05)
$134.01
FV3Q $100(1.025
) $134.49
12
5-32
5-33
5%
2
100
4
100
6
100
5-34
Method 1:
Compound Each Cash Flow
0
5%
2
100
4
100
6
100
110.25
121.55
331.80
Method 2:
Financial Calculator
INPUTS
OUTPUT
10.25
-100
I/YR
PV
PMT
FV
331.80
5-36
INPUTS
OUTPUT
10.25
I/YR
PV
100
PMT
FV
-247.59
5-37
Loan Amortization
Step 1:
Find the Required Annual Payment
INPUTS
OUTPUT
10
-1000
I/YR
PV
0
PMT
FV
402.11
5-39
Step 2:
Find the Interest Paid in Year 1
5-40
Step 3:
Find the Principal Repaid in Year 1
5-41
Step 4:
Find the Ending Balance after Year 1
5-42
5-43
Interest
302.11
Principal Payments
0
Constant payments
Declining interest payments
Declining balance
5-44