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chapter 3 note

# chapter 3 note - CH3 THE TIME VALUE OF MONEY Using Present...

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1 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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