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Unformatted text preview: nancial Controller CFC Using Present Value Tables
= $1,000 (PVIF7%,2)
= $1,000 (.873)
= $873 [Due to Rounding]
Period
6%
7%
8%
1
.943
.935
.926
2
.890
.873
.857
3
.840
.816
.794
4
.792
.763
.735
5
.747
.713
.681 PV2 26 Certified Financial Controller CFC 13 Story
Story Problem Example
Julie Miller wants to know how large of a
deposit to make so that the money will
grow to $10,000 in 5 years at a discount
10,
rate of 10%. 0 1 2 3 4 5 10%
$10,000
10,
PV0
27 Certified Financial Controller CFC Story Problem Solution
Calculation based on general formula:
based on general formula:
PV0 = FVn / (1+i)n
PV0 = $10,000 / (1+ 0.10)5
10,
= $6,209.21
209.
Calculation based on Table I:
based on Table I:
PV0 = $10,000 (PVIF10%, 5)
10,
PVIF
= $10,000 (.621)
10,
= $6,210.00 [Due to Rounding]
210.
28 Certified Financial Controller CFC 14 Types of Annuities
An Annuity represents a series of equal
An Annuity
series of equal
payments (or receipts) occurring over a
specified number of equidistant periods.
Ordinary
Ordinary Annuity: Payments or receipts
occur at the end of each period.
Annuity
Annuity Due: Payments or receipts
occur at the beginning of each period.
29 Certified Financial Controller CFC Examples of Annuities
Student Loan Payments
Car Loan Payments
Insurance Premiums
Mortgage Payments
Retirement Savings
30 Certified Financial Controller CFC 15 Parts of an Annuity
(Ordinary Annuity)
End of
Period 1 0 End of
Period 2 End of
Period 3 1 2 3 $100 $100 $100 Equal Cash Flows
Each 1 Period Apart Today
31 Certified Financial Controller CFC Parts of an Annuity
(Annuity Due)
Beginning of
Period 1 Beginning of
Period 2 0 1 2 $100 $100 $100 Today
32 Beginning of
Period 3 3 Equal Cash Flows
Each 1 Period Apart
Certified Financial Controller CFC 16 Overview of an
Ordinary Annuity  FVA
Cash flows occur at the end of the period 0 1 2 i% n n+1
n+ ...
R R R R = Periodic
Cash Flow FVAn = R(1+i)n1 + R(1+i)n2 +
... + R(1+i)1 + R(1+i)0
33 FVAn Certified Financial Controller CFC Example of an
Ordinary Annuity  FVA
Cash flows occur at the end of the period 0 1 2 3 $1,000 4 $1,000 7%
$1,000 $1,070
$1,145
FVA3 = $1,000(1.07)2 +
$1,000(1.07)1 + $1,000(1.07)0 $3,215 = FVA3
= $1,145 + $1,070 + $1,000
= $3,215
34 Certified Financial Controller CFC 17 Hint on Annuity Valuation
The future value of an ordinary
future value
an ordinary
annuity can be viewed as
end
occurring at the end of the last
cash flow period, whereas the
future value of an annuity due
can be viewed as occurring at
beginning
the beginning of the last cash
flow period.
35 Certified Financial Controller CFC Valuation Using Table III
= R (FVIFAi%,n)
= $1,000 (FVIFA7%,3)
= $1,000 (3.215) = $3,215
Period
6%
7%
8%
1
1.000
1.000
1.000
2
2.060
2.070
2.080
3
3.184
3.215
3.246
4
4.375
4.440
4.506
5
5.637
5.751
5.867 FVAn
FVA3 36 Certified Financial Controller CFC 18 Overview View of an
Annuity Due  FVAD
Cash flows occur at the beginning of the period 0 1 2 3 n1 R R R R R FVADn = R(1+i)n + R(1+i)n1 +
... + R(1+i)2 + R(1+i)1
= FVAn (1+i)
FVA
37 n ... i% FVADn Certified Financial Controller CFC Example of an
Annuity Due  FVAD
Cash flows occur at the beginning of the period 0 1 2 3 $1,000 $1,000 4 $1,070 7%
$1,000 $1,145
$1,225
FVAD3 = $1,000(1.07)3 +
$3,440 = FVAD3
$1,000(1.07)2 + $1,000(1.07)1
= $1,225 + $1,145 + $1,070
= $3,440
38 Certified Financial Controller CFC 19 Valuation Using Table III
= R (FVIFAi%,n)(1+i)
= $1,000...
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This note was uploaded on 05/28/2013 for the course FINANCE economy taught by Professor Nill during the Fall '12 term at Bronx School Of Law And Finance.
 Fall '12
 nill
 Time Value Of Money

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