Checkpoint-Time Value of Money

Checkpoint-Time Value of Money - Present value is the value...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Present value is the value of a cash flow today. Usage when a single cash flow is to be discounted to today’s value. Formula PV = FV / ((1+i) ^n)) Where, PV = Present value FV = Future Value i= interest rate per compounding period n=period PVIF = Present Value Interest Factor = (1/ ((1+i) ^n)) Example Mr A would receive $1,100 from Mr B after 1 year. Find the present value of the cash flow if Mr A’s interest rate is 10% p.a. PV = 1100 / (1.1^1) = $1,000 Thus, the present value of cash flow to be received after 1 year is $1,000 today. Present value of annuity is the value of a series of equal cash flow received in equidistant period, today. Usage when a series of cash flow is to be discounted to today’s value. Formula PV = (a/i) (1-(1/ ((1+i) ^n))) Where, PV = Present value a = equal cash flow (annuity) i= interest rate per compounding period n=no. of annuities PVIFA = Present Value interest factor of annuity = (1/i) (1-(1/ ((1+i) ^n))) If cash flow occurs at the beginning of period then the above formula is to be multiplied by (1+i)...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online