Examples of
FV of a LUMP SUM:
$10,000 lump sum invested for 6 years, solve for FV:
@ 8%: $10,000 x (1.08)
6
= $15,868.74
@12%: $10,000 x (1.12)
6
= $19,738.23
@16%: $10,000 x (1.16)
6
= $24,363.96
@16% semi-annual compounding: $10,000 x (1.08)
12
= $25,181.70
Examples of
PV of an ANNUITY:
$10,000 annual PMT for 6 years, solve for PV
N
I
PV*
PMT
FV
6
8%
($46,228.80)
$10,000 0
If you receive $10,000 per quarter for 6 years at 8% annual rate:
N
I
PV*
PMT
FV
24
2%
($189,139)
$10,000 0
If PMTs are paid at the BEGINNING of the quarter:
Set calculator: ORANGE KEY, BEG/END, Solve for PV.
N
I
PV*
PMT
FV
24
2%
($192,922)
$10,000 0
or leave at END of period and solve for N = 23 + $10,000
$182,922 (23 future CFs) + $10,000 today = $192,922
Examples of
FV of an Annuity
Invest $10,000 each year for 6 years, solve for FV @ 8%
N
I
PV
PMT
FV*
6
8%
0
$10,000
$73,359
Invest $10,000 each quarter for 6 years @ 8%
BUS 468 / MGT 568: FINANCIAL MARKETS – CH 2
Professor Mark J. Perry
2