SUBMITTED TO

UMMA RUMANA HUQ

LECTURER OF FINANCE,
SCHOOL OF BUSINESS.
UIU


Welcome
SUBMITTED BY
SECTION: A
MD. MEHEDI HASAN 111091127
REFAT BIN JAHANGIR 111091170
MD.YEASIN SARKER 111091130
SHAHARIAR HASAN 111091236
SAYEDUDDIN AHMED-
TIME VALUE OF MONEY
(INTEREST RATE, FV, PV, & ANNUITY)
Presentation On
WHAT IS THE TIME VALUE OF MONEY?

A taka received today is worth more than a
taka received tomorrow
This is because a taka received today can
be invested to earn interest.
The amount of interest earned depends
on the rate of return that can be earned on the
investment.
Time value of money quantifies the value of a
dollar through time.
THE TIME VALUE OF MONEY

Would you prefer to
have tk1 million now
or
tk1 million 10 years
from now?
Of course, we would all
prefer the money now!
This illustrates that there
is an inherent monetary
value attached to time.
TYPES OF INTEREST
Simple interest
Interest paid on only the original
amount or principal, borrowed.
Formula: SI= Po(i)(n)

Compound interest
Interest paid on any previous interest
earned as well as on the principal
borrowed.
Formula: CI= Po(1+i)
n
Deposit SI(10%)
1000(yr1) 100
1000(yr2) 100
1000(yr3) 100
Deposit CI(10%)
1000(yr1) 100
1000(yr2) 110
1000(yr3) 121
TIMELINES
A timeline is a graphical device used to clarify
the timing of the cash flows for an investment

0 1 2 3 4 5
PV
Today
FV
PRESENT VALUE
Present value calculations determine what the
value of a cash flow received in the future would be
worth today (time 0).
The interest rate used to discount cash flows is
generally called the discount rate.
( )
PV
FV
i
N
N
=
+ 1
EXAMPLE OF PV
How much would tk.100 received five years
from now be worth today if the current interest
rate is 10%?



= 100/(1.10)
5
=tk.62.09


4
5
?
i = 10%
$100
0
1
2
3
( )
PV
FV
i
N
N
=
+ 1
FUTURE VALUE
Future value determines the amount that a
sum of money invested today will grow to in
a given period of time
The process of finding a future value is called
compounding (hint: it gets larger)

( )
FV PV i
N
N
= + 1
EXAMPLE OF FV


How much money will you have in 5 years if you
invest $100 today at a 10% rate of return?





FV
n
= PV
0
(1+r)
n
= 100(1+.10)
5
=161.05
0 1 2 3
$100 ?
i = 10%
4 5
DOUBLE YOUR MONEY
Double your money is called Rule of 72.
Formula= 72/i

How long does it take to double 5000 tk. At a
compound rate of 12% per year?
72/12= 6 years.
ANNUITY
An annuity is a series of nominally equal
payments equally spaced in time.



This timeline shows an example of a 5-year,
$100 annuity.

0 1 2 3 4 5
100 100
100
100 100
TYPES OF ANNUITIES

Ordinary annuity
Payments or receipts occur at the end of
each periods.
Annuity due
Payments or receipts occur at the
beginning of each periods.
ORDINARY ANNUITY (PVA)
Using the previous example, and assuming a
discount rate of 10% per year, we find that the
present value is: Formula:
0 1 2 3 4 5
100 100 100 100 100
62.09
68.30
75.13
82.64
90.91
379.08
( )
(
(
(

=
i
i
R PV
n
A
1
1
1
( )
08 . 379
10 . 0
10 . 1
1
1
100
5
=
(
(
(

=
A
PV
/R(PVIFA i,n)
ORDINARY ANNUITY (FVA)
Using the previous example, and assuming a
discount rate of 10% per year, we find that the
future value is: Formula:
100 100 100 100 100
0 1 2 3 4 5
146.41
133.10
121.00
110.00
}
= 610.51
at year 5
( )
(

+
=
i
i
R FV
n
A
1 1
( )
FV
A
=

(
(
= 100
110 1
010
61051
5
.
.
.
/R(FVIFA
i,n)

ANNUITY DUE (PVAD)
Formula:
( )
( )
) 1 (
1
1
1
i
i
i
R PV
n
AD
+ +
(
(
(

=
( )
( )
98 . 416 ) 10 . 1 (
10 . 0
10 . 1
1
1
100
5
=
(
(
(

=
AD
PV
Therefore, the present value of our example
annuity due is:
ANNUITY DUE (FVAD)
Formula:
( )
( ) i
i
i
R FV
n
AD
+
(

+
= 1
1 1
The future value of our example annuity is:
( )
( )
FV
AD
=

(
(
= 100
110 1
010
110 67156
5
.
.
. .
THANK YOU