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CH3: THE TIME VALUE OF MONEY
Using Present Value Tables and Formula
By. Dr. M. Metghalchi
Two types of calculations:
I. Single Amount
:
A.
Future Value of a single amount
B.
Present Value of a single amount
II. Annuity:
C.
Future value of an annuity (Multiple cash flows)
D.
Present value of an annuity (Multiple cash flows)
The mathematics of finance (time value of money) can be estimated by four methods:
1.
Present Value Tables at the end of your book (Appendix A)
2.
Calculator
3.
Excel
4.
Mathematics
The easiest way would be to use Excel. This lecture uses present value tables, and
sometimes calculator, however I have also included in my lecture notes an Excel file
for time value of money. I strongly recommend students to use the Excel methods.
I. Single Amount
.
A.
future value of a single amount. The general formula for finding the future
value of a single amount are as follow :
FV = PV*FVIF(i/m, nm)
(in table form)
(1)
FV = PV * (1 + i)
n
mathematical if annual compounding
FV = PV * (1+ i/m)
nm
mathematical form, if m times compounding per year
FVIF(i/m, nm) = (1+ i/m)
nm
The value of FVIF(i/m, nm)
can be obtained from Present Value Tables or
Mathematical Tables at the end of your book, Appendix A.
The definitions of various variables in the above equations are:
FV=future value, PV= present value,
i= annual interest rate, m=number of times
compounding per year and n= number of years.

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