Financial Management

Time Value of Money

ESSEC Asia Pacific
Marie-Laure Caille, CFA

Objectives of this section

By the end of this section, you will understand:

• The difference between simple and compound interest

• How to calculate present and future values
• The difference between nominal and effective annual
return
• Loan amortization

ESSEC – Financial Management – MLC 1

 Time Value of Money

Would you prefer $1,000 today or

$1,000 in one year?

Time Value of Money

• Time value of money is one of the key concepts of

finance.
• It is based on the notion that a dollar received today
is worth more than a dollar received at some future
date.
o The interest rate reflects the fact that people generally prefer to
consume now rather than later, i.e., they have to be
compensated for delaying consumption.
o $1 received today can be invested and its value increased by an
interest rate (or return), so that in one year an investor will have
more than $1.

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 Video on Time Value of Money

Link: http://www.investopedia.com/video/play/understanding-time-value-of-money/
5

Time Lines

• A time line is a graphical representation used to show

the timing of cash flows. It is a very useful tool in time
value analysis. It can be used to represent a single cash
flow or a series of cash flows.
0 1 2 3
r%

CF0 CF1 CF2 CF3

• The intervals from 0 to 1, 1 to 2, and 2 to 3 are time periods, e.g., years or
months.
• Each tick mark corresponds to the end of one period, and the beginning of the
next one. So Time 0 is today; Time 1 is the end of the first period and the
beginning of the second period.

• Cash flows are shown directly below the tick marks. The norm is to indicate
unknown cash flows by question marks. The interest rate is shown above the
time line.
6

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 Examples of Time Lines
$100 lump sum due in 2 years
Lump sum: A single cash flow that
0 1 2 occurs at the beginning or the end of
r% the investment horizon with no other
cash flows exchanged
$100

3-year $100 ordinary annuity

Annuity: A series of equal cash flows
0 1 2 3 received at fixed intervals (e.g., once a
r%
year, once every six months) for a
specific number of periods
$100 $100 $100
Ordinary (Deferred) annuity: An
annuity whose payments occur at the
3-year $100 annuity due end of each period
0 1 2 3 Annuity due: An annuity whose
r% payment occur at the beginning of
each period
$100 $100 $100
7

Calculating Simple Interest Returns

0 1 2
10%
Only principal is carried
forward to year 2
$100 $100 $100
Principal: $10 = $100 x 0.10 $10 = $100 x 0.10
The original amount invested
$110 $110
$10
Total at the end
$120 of year 2

Value in 2 years = Principal + Interest on Principal (year 1)

+ Interest on Principal (year 2)

Ø Simple interest: Interest earned on an investment is not reinvested.

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 Calculating Compounded Interest Returns

0 10% 1 2

Both the principal & interest

are carried forward to year 2
$100 $100 $100
Principal: $10 = $100 x (0.10) $10
The original amount invested $10 = $100 x 0.10
$110
$1 = $10 x 0.10
$121 Total at the end
of year 2

Value in 2 years = Principal + Interest on Principal (year 1)

+ Interest on Principal (year 2)
+ Compounded interest
(interest in year 2 on interest earned in year 1)

Ø Compounded interest: Interest earned on an investment is reinvested.

9

Video on Compound Interest

Link: http://www.investopedia.com/video/play/make-money-compound-interest/
10

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 Future Value – Overview

• The concept of time value of money allows us to

calculate the future value (FV) of an investment at a
specific future date.
• The calculation of FV uses compounding interest, i.e.,
it assumes that interests earned on the principal are
reinvested.
• Finding the FV of a cash flow (or a series of cash flow) is
called compounding.

11

Future Value of a Lump Sum

0 1 2 3 N
10%

PV = $100 $110 $121 $133.1 FV

x (1 + 0.10) x (1 + 0.10) x (1 + 0.10)

x (1 + r)
x (1 + r)2
x (1 + r)3
x (1 + r)N

r: interest rate
FVN = PV (1 + r)N N: number of periods

Ø The equation of the FV of a lump sum translates a cash flow (PV) received
at the beginning of the investment period to a future (terminal) value (FV) at
the end of the investment period.
12

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 Different Approaches for Finding FV

1. The step-by-step approach

E.g., in the first part of the slide “Future Value of a Lump Sum”.

2. The formula approach

2. The financial calculator approach

3. The Excel (spreadsheet) approach

4. The interest factor table approach

13

The Financial Calculator Approach

• For calculations involving the time value of money, a financial
calculator uses five keys:
• N: number of periods
• I/YR (or i or I/Y): interest rate per period (expressed as a percentage)
• PV: present value
• PMT: annuity (i.e., amount of any recurring payment)
• FV: future value

• Inflows are treated as positive numbers; outflows as negative

numbers.
• Given any four of these inputs, the calculator will solve for the fifth
value. Example:
This is valid for HP
INPUTS 3 10 -100 0 calculators.
For Sharp calculators,
N I/YR PV PMT FV press COMP before FV.
For Texas Instruments
calculators, press CPT
OUTPUT 133.10 before FV.

14

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 The Financial Calculator Approach –
Examples of Solving for I and N
• What interest rate would cause $100 to grow to $125.97 in 3 years?

• If sales grow at 20% per year, how long will it take for sales to
double?

15

The Excel Approach

• It has mostly replaced financial calculators.
• Spreadsheets have built-in functions that allow you to find the value
for any of the five variables in a time-value-of-money problem.
• A formula requires four inputs and solves for the fifth variable.

PV: present value

FV: future value
rate: interest rate
nper: number of periods
pmt: payment

The Excel functions for the other variables are:

Present value =PV (rate, nper, pmt, FV)

Interest rate =RATE (nper, pmt, PV, FV)
Number of periods =NPER (rate, pmt, PV, FV)

16

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 The Interest Factor Table Approach
• Basic principle:
FV = PV (FVIFr, N)
FVIFr, N is the future value
interest factor of a lump sum
• Very outdated approach. It was
largely replaced in the 1980s by
financial calculators.
• However some textbooks still
present it; some even use it as
the main approach.
• Tedious to use.
• Values are available for limited
combinations of interest rates
and time periods.

17

Future Value of a Lump Sum – Examples

You invested $1,000 in a security whose interests are compounded annually.

What will be the value of your investment at the end of 5 years if the annual
interest rate is:
• 6% :
• 8% :
• 10% :

Suppose now that interests are compounded semi-annually.

What will be the value of your investment at the end of 5 years if the annual
interest rate is:
• 6% :
• 8% :
• 10% :

18

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 FV of a Lump Sum and Interest Rates
• As the interest rate increases, the future value of an investment increases at
an increasing rate.
§ At 6% FV = $1,000 x (1 + 0.06)5 = $1,338.2
$131.1 This is because of
§ At 8% FV = $1,000 x (1 + 0.08)5 = $1,469.3 the compounding
$141.2 of interest returns
§ At 10 % FV = $1,000 x (1 + 0.10)5 = $1,610.5

FV

Interest rate

19

FV of a Lump Sum: Annual, Semiannual and

Other Compounding Periods
• The number of compounding periods per year can vary:
Ø For example, bonds generally pay interest semiannually.

• As the number of compounding periods per year increases, the FV of an

investment ì.
• When interest payments occur more than once a year, you have to convert:
1. The number of years into a “number of periods”:
Number of Periods = (Number of years) x (Number of periods per year)

= N x NPY
2. The stated annual interest rate into a “periodic rate”:

Periodic Rate (rPER ) = Stated annual rate / Number of payments per year

= r / NPY

20

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 Video on Future Value

Link: http://www.investopedia.com/video/play/future-value/
21

Present Value – Overview

• The concept of time value of money also allows us to

calculate the present value (PV) of a single cash flow or
a series of cash flows.
• PV shows the value of cash flows in terms of today’s
purchasing power.
• The calculation of PV also assumes that interests earned
on the principal during the investment period are
reinvested.
• Finding the PV of a cash flow (or a series of cash flow) is
called discounting.

22

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 Present Value of a Lump Sum
0 1 2 3
10%

PV $100 = FV

• This is the reverse of finding a FV.

• The five different approaches that can be used to calculate a FV
can also be used to calculate a PV.
• The formula approach:
FVN = PV (1 + r)N

is called the discount factor

The interest rate r is called the

discount rate

23

The Financial Calculator Approach

• This is exactly like solving for FV, except that we have
different input information and are solving for a different
variable.

This is valid for HP

INPUTS 3 10 0 100 calculators.
For Sharp calculators,
N I/YR PV PMT FV press COMP before FV.
For Texas Instruments
calculators, press CPT
OUTPUT -75.13 before FV.

24

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 Present value of a Lump Sum – Examples

You are offered an investment that pays $1,000 in 5 years in exchange for a
fixed payment today. How much would you be willing to pay for this investment,
at the following annual interest rates compounded annually:
• 6% :
• 8% :
• 10% :

Suppose now that interests are compounded semi-annually. How much would
you be willing to pay for this investment at the following annual interest rates:
• 6% :
• 8% :
• 10% :

25

Present Value of a Lump Sum – Learning

from Previous Examples
• As the interest rate increases, the present value of an investment decreases.
This inverse relationship between the present value of a financial instrument and
interest rates is one of the key concepts in finance.
• As the interest rate increases, the present value of an investment decreases at
a decreasing rate.
§ At 6% PV = $1,000 / (1 + 0.06)5 = $747.3
$66.6
§ At 8% PV = $1,000 / (1 + 0.08)5 = $680.6
§ At 10 % PV = $1,000 / (1 + 0.10)5 = $620.9 $59.7

PV

Interest rate
• As the number of compounding periods per year increases, the present value of
an investment decreases.

26

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 Present Value of a Lump Sum – Exercise

You would like to buy a car. You can buy it either from Bugis Autos or Orchard
Motors.
Bugis Autos is offering free credit on a $20,000 car. You pay $8,000 down and
then the balance at the end of 2 years.
Orchard Motors does not offer free credit but will give you a $1,000 discount
off the list price.
If the interest rate is 10%, which company is offering the better deal?

27

Annuity – Overview
• An annuity is a series of equal cash flows received at fixed intervals (e.g., once/year,
once/six months) for a specified number of period. There are two types of annuity:
ordinary (deferred) annuity (payments occur at the end of each period) and
annuity due (payments occur at the beginning of each period).

0 1 2 3
r%
3-year $100 ordinary annuity
$100 $100 $100

0 1 2 3
r% 3-year $100 annuity due

$100 $100 $100

• Each payment of an annuity due earns interest for one additional period as compared to an
ordinary annuity.
• Examples of annuities: bond coupon payments, loan repayments.

28

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 Future Value of an Annuity
FV of an ordinary annuity, where you deposit $100 at the end of each year for 3
years at 10% interest rate per year:
0 1 2 3
10%

$100 $100 $100

$100 Compound each

x (1 + 0.10) payment to year 3 and
x (1 + 0.10)2 $110
sum up the
$121 compounded values

$331

FVA3 = $100 x (1 + 0.10)2 + $100 x (1 + 0.10)1 + $100 x (1 + 0.10)0

Generalization (long form)

FVAN = PMT x (1 + r)N-1 + PMT x (1 + r)N-2 + PMT x (1 + r)N-3 +… + PMT x (1 + r)0

The geometric
Generalization (short form) progression in the long
(ordinary annuity) form is reduced in the
short form
29

Future Value of an Annuity

• The future value of an annuity of N periods (FVAN) can be found using any
of the 5 approaches described earlier.
• The financial calculator approach:
This is valid for HP
INPUTS 3 10 0 -100 calculators.
For Sharp calculators,
N I/YR PV PMT FV press COMP before FV.
For Texas Instruments
calculators, press CPT
OUTPUT 331 before FV.

When calculating the FV of an ordinary annuity, ensure that your calculator is set on
the “End Mode” (this is the default mode). When calculating the PV of a annuity due,
switch to “Begin Mode”.

• The Excel approach: Future Value =FV (rate, nper, pmt, PV, type)
Ø The interest rate should be entered as a decimal; annuity payments should be entered as a
negative.
Ø The “type” entry is to indicate whether a payment is made at the beginning or end of a
period. Two values are possible: “0” for an ordinary annuity, and “1” for an annuity due.
30

ESSEC – Financial Management – MLC 15

 Future Value of an Annuity – Example
Suppose that you plan to buy a condo five years from now, and you
need to save for a down payment. You plan to save $2,500 per year,
with the first payment made at the end of the first year. You will deposit
the funds in a bank account that pays 4% interest rate.
How much will you have after 5 years?

How much would you have if you made each payment at the beginning
of each year, with the first payment made immediately?

31

Present Value of an Annuity

PV of an ordinary annuity, where you deposit $100 at the end of each year for 3
years at 10% interest rate per year:
0 1 2 3
10%

Discount each payment to

$100 $100 $100
the present and sum up the
discounted values $90.91 / (1 + 0.10)
/ (1 + 0.10)2
$82.64
$75.13
/ (1 + 0.10)3
$248.68

PVA3 = $100 / (1 + 0.10)1 + $100 / (1 + 0.10)2 + $100 / (1 + 0.10)3

Generalization (long form)

PVAN = PMT / (1 + r)1 + PMT / (1 + r)2 + PMT / (1 + r)3 +… + PMT / (1 + r)N

Generalization (short form)

(ordinary annuity)

32

ESSEC – Financial Management – MLC 16

 Present Value of an Annuity
• The present value of an annuity of N periods (PVAN) can also be found
using any of the 5 approaches described earlier.
• The financial calculator approach:
This is valid for HP
INPUTS 3 10 -100 0 calculators.
For Sharp calculators,
N I/YR PV PMT FV press COMP before FV.
For Texas Instruments
calculators, press CPT
OUTPUT 248.69 before FV.

When calculating the PV of an ordinary annuity, ensure that your calculator is set on
the “End Mode” (this is the default mode). When calculating the PV of a annuity due,
switch to “Begin Mode”.

• The Excel approach: Present Value =PV (rate, nper, pmt, FV, type)
• The PV of an annuity due, using the same values for N, I/YR, PMT, and FV,
is $273.55. The PV of the annuity due is larger because each payment is
discounted back to the present one year less than for an ordinary annuity.

33

Perpetuity – Overview
• A perpetuity is a stream of equal payments at fixed intervals expected to
continue forever.
§ Example: A perpetual bond (also known as a consol) has no maturity date, so it
is not redeemable but pays a steady stream of interest forever. Such bonds were
issued by the British Treasury in the 18th century to consolidate the government’s
debt (hence the name “consol”!).

• A perpetuity is simply an annuity with an infinite life.

When N approaches infinity, the

numerator of the term in brackets
approaches 1

34

ESSEC – Financial Management – MLC 17

 Perpetuity – Examples
What is the present value of the British consol with a face value of £1,000 that
pays £25 every year in perpetuity, at the following points in time:
• In 1888, when the “going rate” was 2.5% PV = £25 / 0.025 = £1,000.00
• In 2004, when the “going rate” was 5.2% PV = £25 / 0.052 = £480.77
• In 20XX, when the “going rate” is 2.0% PV = £25 / 0.020 = £1,250.00

Learning:

Ø As the interest rate changes, the price of the bond changes.

Ø As the interest rate increases, the price of the bond decreases.

Ø As the interest rate decreases, the price of the bond increases.

35

Uneven Cash Flows – Overview

• Uneven (Nonconstant) Cash Flows designates a series of cash
flows where the amount varies from one period to the next.
• The norm is to use CFN to indicate that cash flows are uneven.
• The present value of uneven cash flows is computed very frequently
in finance. This is because the values of all financial assets (e.g.,
stocks and bonds), are calculated as the present value of the
expected future cash flows that they will generate.
• The future value of uneven cash flows is not used as often.

36

ESSEC – Financial Management – MLC 18

 Uneven Cash Flows – Present Value
Step-by-step approach for a series of uneven cash flows paid over 3 years at
10% interest rate per year:
0 1 2 3
10%

Discount each payment to

$100 $200 $50
the present and sum up the
discounted values $90.91 / (1 + 0.10)
/ (1 + 0.10)2
$165.29
$37.57
/ (1 + 0.10)3
$293.77

PVCF = $100 / (1 + 0.10)1 + $200 / (1 + 0.10)2 + $50 / (1 + 0.10)3

Generalization (long form)

PVCF = CF1 / (1 + r)1 + CF2 / (1 + r)2 + CF3 / (1 + r)3 +… + CFN / (1 + r)N

Generalization (short form)

37

Calculating the PV of Uneven Cash Flows

The financial calculator approach

• Using your financial calculator to calculate the PV of uneven cash flows requires a
few more steps than the calculations we have done so far.
• The steps are as follows:
§ Input the cash flows in the calculator’s “CFLO” register:
§ CF0 = 0; CF1 = 100; CF2 = 200; CF3 = 50

§ Enter I/YR = 10; press NPV (here NPV = PV)

§ The result $293.76 should appear.

38

ESSEC – Financial Management – MLC 19

 Calculating the PV of Uneven Cash Flows
The Excel approach
Method 1

Method 2

39

PV of Uneven Cash Flows – Example

Suppose that your auto dealer gives you a choice between paying $15,500 today for a
used car or entering into an installment plan where you pay $8,000 down today and make
payments of $4,000 in each of the next 2 years. Assuming that the interest rate that you
can earn on a safe investment is 8%, which is the better deal?

40

ESSEC – Financial Management – MLC 20

 PV of Uneven Cash Flows – Example
Installment plan – How does it work?

Invested safely in a The balance is 0, so

savings account at 8% you have the exact
amount of money to
make the last payment
Interest that you can
earn if you invest the
remaining balance in a
savings account at 8%

41

Classification of Interest Rates

• The annual rate that is quoted on contracts and ignores
Nominal Interest
Rate (rNOM) the effect of compounding.
• It is also called the annual percentage rate (APR) or
stated, or quoted rate.
• It is the “true rate” only if a loan or investment uses annual
compounding.

• It is the amount of interest charged each period.

Periodic Rate (rPER)
• rPER = rNOM / NPY
Ø E.g., if interest rates are compounded quarterly, NPY = 4.

• The annual rate of interest actually being earned,

Effective Annual
Rate (EAR%) accounting for compounding.
• Also called Equivalent Annual Rate.

42

ESSEC – Financial Management – MLC 21

 Effective Annual Rate

Equation

• Investments with the same rNOM but different compounding

Why it is important
intervals provide different effective (real) returns.
• To compare such investments, EAR% must be used.

• An investment has an annual interest rate of 10%. Its

Example
EAR will depend on how often interests are compounded:
Ø Annually: EAR% = 10%
Ø Semiannually: EAR% = 10.25%
Ø Quarterly: EAR% = 10.38%
Ø Monthly: EAR% = 10.47%
So, for example, an investor would be indifferent between an
investment that pays 10.25% with annual compounding or 10%
with semiannual compounding.
43

Exercise
What is the FV of $100 after 3 years under 10% semiannual compounding?
Quarterly compounding? Monthly compounding?

44

ESSEC – Financial Management – MLC 22

 Conclusion on Interest Rates
Type of interest rate Use

rNOM In contracts, quoted by banks and brokers

rPER Used in calculations and shown in time lines

EAR% Used to compare returns on investments with a

different number of payments per year

If NPY = 1 rNOM = rPER = EAR%

If NPY > 1 EAR% > rNOM

45

Amortized Loan
• It is a loan that is repaid in equal payments over its life.
Ø A fraction of each payment goes towards the payment of interests, and the
balance goes towards the repayment of principal.

• An amortization table (or schedule) shows how a loan will be repaid.

It gives the required payment on each payment date, and a
breakdown of the payment, showing how much is interest and how
much is repayment of principal.
Ø Amortization tables are widely used for home mortgages, auto loans, business
loans, retirement plans, etc.

46

ESSEC – Financial Management – MLC 23

 Amortized Loan - Example
Example: Construct an amortization schedule for a $1,000, 10% annual rate
loan with 3 equal payments at the end of each year.

47

Amortized Loan - Example

Example: Construct an amortization schedule for a $1,000, 10% annual rate
loan with 3 equal payments at the end of each year. The steps are as follows:

• Step 1: Find the required annual payment (PMT)

Ø All inputs are already given. Remember that FV = 0 because the loan is retired at the end of
the 3 payments.
Ø PMT = $402.11

• Step 2: Find the interest payment in Year 1

Ø Interests must be paid at the end of the first year on the initial amount of the loan:
$1,000 x 10% = $100

• Step 3: Find the principal repaid in Year 1

Ø Principal = PMT – Interest payment in Year 1 = $402.11 – $100 = $302.11

• Step 4: Find the year-end balance in Year 1

Ø End balance = Beginning balance – Principal repaid in Year 1 = $1,000 - $302.11 = $697.89

• Repeat steps 2 to 4 until the loan is paid off.

48

ESSEC – Financial Management – MLC 24

 Amortization Table

Year BEG BAL PMT INT PRIN END BAL

1 $1,000 $402 $100 $302 $698

2 698 402 70 332 366

3 366 402 37 366 0

TOTAL 1,206.34 206.34 1,000 -

Declining balance The fraction of each

payment devoted to
interest falls with time

Constant payments The fraction of each

payment devoted to
principal increases with
time

49

Amortization Table – Illustration

402.11
Interest
302.11

Principal Payments

0 1 2 3

50

ESSEC – Financial Management – MLC 25

 Solutions to Exercises

51

The Financial Calculator Approach –

Examples of Solving for I and N
• What interest rate would cause $100 to grow to $125.97 in 3 years?

This is valid for HP

INPUTS 3 -100 0 125.97 calculators.
For Sharp calculators,
N I/YR PV PMT FV press COMP before FV.
For Texas Instruments
calculators, press CPT
OUTPUT 8 before FV.

• If sales grow at 20% per year, how long will it take for sales to
double?
This is valid for HP
INPUTS 20 -1 0 2 calculators.
For Sharp calculators,
N I/YR PV PMT FV press COMP before FV.
For Texas Instruments
calculators, press CPT
OUTPUT 3.8 before FV.

52

ESSEC – Financial Management – MLC 26

 Future Value of a Lump Sum – Examples

You invested $1,000 in a security whose interests are compounded annually.

What will be the value of your investment at the end of 5 years if the annual
interest rate is:
• 6% : N = 5, r = 6% FV = $1,000 x (1 + 0.06)5 = $1,338.2
• 8% : N = 5, r = 8% FV = $1,000 x (1 + 0.08)5 = $1,469.3
• 10% : N = 5, r = 10% FV = $1,000 x (1 + 0.10)5 = $1,610.5

Suppose now that interests are compounded semi-annually.

What will be the value of your investment at the end of 5 years if the annual
interest rate is:
• 6% : N = 10, r = 3% FV = $1,000 x (1 + 0.03)10 = $1,343.9
• 8% : N = 10, r = 4% FV = $1,000 x (1 + 0.04)10 = $1,480.2
• 10% : N = 10, r = 5% FV = $1,000 x (1 + 0.05)10 = $1,628.9

53

Present value of a Lump Sum – Examples

You are offered an investment that pays $1,000 in 5 years in exchange for a
fixed payment today. How much would you be willing to pay for this investment,
at the following annual interest rates compounded annually:
• 6% : N = 5, r = 6% PV = $1,000 / (1 + 0.06)5 = $747.3
• 8% : N = 5, r = 8% PV = $1,000 / (1 + 0.08)5 = $680.6
• 10% : N = 5, r = 10% PV = $1,000 / (1 + 0.10)5 = $620.9

Suppose now that interests are compounded semi-annually. How much would
you be willing to pay for this investment at the following annual interest rates:
• 6% : N = 10, r = 3% PV = $1,000 / (1 + 0.03)10 = $744.1
• 8% : N = 10, r = 4% PV = $1,000 / (1 + 0.04)10 = $675.6
• 10% : N = 10, r = 5% PV = $1,000 / (1 + 0.05)10 = $613.9

54

ESSEC – Financial Management – MLC 27

 Future Value of an Annuity – Example
Suppose that you plan to buy a condo five years from now, and you
need to save for a down payment. You plan to save $2,500 per year,
with the first payment made at the end of the first year. You will deposit
the funds in a bank account that pays 4% interest rate.
How much will you have after 5 years?

How much would you have if you made each payment at the beginning
of each year, with the first payment made immediately?

FVAdue = FVAordinary (1 + r)
= $13,540.81 x 1.04 = $14,082.44

55

PV of Uneven Cash Flows – Example

Suppose that your auto dealer gives you a choice between paying $15,500 today for a
used car or entering into an installment plan where you pay $8,000 down today and make
payments of $4,000 in each of the next 2 years. Assuming that the interest rate that you
can earn on a safe investment is 8%, which is the better deal?

Installment plan
0 1 2
8%

Discount each payment to

$8,000 $4,000 $4,000
the present and sum up the
discounted values
/ (1 + 0.08) / (1 + 0.08)2
$8,000.00
$3,703.70
$3,429.36

$15,133.06

Conclusion: $15,500 > $15,133.06, so the installment plan is the better deal.

56

ESSEC – Financial Management – MLC 28

 Exercise
What is the FV of $100 after 3 years under 10% semiannual compounding?
Quarterly compounding? Monthly compounding?

Semiannually

Quarterly

Monthly

57

ESSEC – Financial Management – MLC 29