Checkpoint-Time Value of Money

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

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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)...
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