Time Value of Money Worksheet

• If PV of single Cash Flow & Calculating FV as a single sum.

Table: FVIF

• If FV of single Cash Flow & Calculating PV as a single sum.

Table: PVIF

• If PV of Annuity / Installment & Calculating FV as a single sum.

Table: FVIFA

• If FV of Annuity / Installment & Calculating PV as a single sum.

Table: PVIFA

• If PV of single Cash Flow & Calculating FV of Installment / Annuity (Loan

Amortization / Borrowed Money to be paid in future installments)

Table: PVIFA (Inverse/ Reciprocal) / Capital Recovery Factor

A X PVIFA @ R%, T Periods = Present value of Sum

A = Present value of Sum / PVIFA @ R%, T Periods

• If FV of single Cash Flow & Calculating PV of Installment / Annuity (Creating a

future fund or pool of funds or kitty)

Table: FVIFA (Inverse/ Reciprocal) / Sinking Fund Factor

A X FVIFA @ R%, T Periods = Future Value of a Sum

A = Future Value of Sum / FVIFA @ R%, T Periods

1. You have Rs. 30,000 to buy a smartphone for yourself. If you hold off for 5 years,
how much will you have then at 6% interest?
Given: PV of a Single Cash Flow = 30000
Calculate: Future Value a Single Cash Flow
Convert PV of single cash flow to FV of Single Cash Flow
Table - FVIF
Future Value = PV of a Single Cash Flow X FVIF @ 6%, 5 Periods
= 30000 X 1.3382 = 40,146
2. The book value of an Asset is Rs. 35,000 at the end of year 7. At 8% rate of interest,
this would compensate for how much of its current price?
Given: FV of a Single Cash Flow = 35000
Calculate: Present Value a Single Cash Flow
Convert FV of single cash flow to PV of Single Cash Flow
Table - PVIF
Present Value = FV of a Single Cash Flow X PVIF @ 8%, 7 Periods
= 35000 X 0.5835 = 20,422
3. Four equal annual payments of Rs. 2,000 are made into a deposit account that pays
8% interest per year. What is the future value of this annuity at the end of 4 years?

Given: PV of Annuity or Installments Amount = 2000

Calculate: Future Value as a Single Cash Flow or Value

Convert PV of Annuity to FV as a Single Cash Flow or Value

Table –FVIFA

Future Value as Single Cash flow for a Present Annuity = PV of Annuity X FVIFA
@8%, 4 Periods = 2000 X 4.5061 = 9,012.2

4. An investment promises to pay Rs. 5,000 at the end of each year for 10 year annual
payment. What is the value of this Annuity now if the rate of interest is 12%?
Given: FV of an Annuity or Installments Amount = 5000
Calculate: Present Value as a Single Cash Flow or Value
Convert FV of Annuity to PV as a Single Cash Flow or Value
 Table –PVIFA
Present Value as Single Cash flow for a Future Annuity = FV of Annuity X PVIFA @
12%, 10 Periods
= PVIFA @ 12%, 10 years
= 5000 X 5.6502 = 28,251
5. You need to borrow Rs. 50,000 for new equipment. If you borrow at 9% interest for
4 years, what is the annual payment? (Loan Amortization OR Capital Recovery
Factor)
A X PVIFA @ R%, T Periods = Present value of Sum

Given: PV of as a Single Cash Flow or Value (Loan Amount)

Calculate: Future Value as an Annuity or Installments Amount

Convert PV of a Single Cash Flow to FV as an Annuity or Installments

Table – PVIFA But as an Capital Recovery Factor = 1 / PVIFA

Future Value as an Annuity or Installments= PV of a Single Cash Flow / PVIFA @ 9%, 4

Periods = 50000 / 3.2397 = 15,433.52

6. Your father has promised to give Rs. 1, 00,000 in cash on your 25 th birthday. Today
is your 16th birthday. He wants to know if he decides to make annual payments into
a fund after one year, how much will each have to be if the funds pays 8% per
annum?

A X FVIFA @ R%, T Periods = FV of a Sum

Given: FV of as a Single Cash Flow or Value

Calculate: Present Value as an Annuity or Installments Amount

Convert FV of a Single Cash Flow to PV as an Annuity or Installments

Table – FVIFA But as an Capital Recovery Factor = 1 / FVIFA

Present Value as an Annuity or Installments= FV of a Single Cash Flow / FVIFA @ 8%,

9 Periods = 1, 00, 000 / 12.488 = 8007.69
7. A 12 year payment annuity of Rs. 10,000 will begin 8 years. The first payment
occurs at the end of 8 years. What is the present value of this annuity if the discount
rate is 14 per cent?
Given: FV of Annuity
Calculate: Present Value of Annuity
Table: PVIF
i. Determine the Value of the Annuity a year before the first payment begins (Annuity at
the end of the period). This is 7 years from now.

Periods / Years Cash Flow or PVIFA @ R%, T Present Value of

Annuity Periods Cash Flow
T = Beg of 8th Year PV of Annuity at the end of 7 year or Beginning of 8th year =
th

56603
T= End of 8th Year Rs. 10000 PVIFA @ 14%, 12 10000 X 5.6603
to T T= End of 20th years = 5.6603
Year

ii. Compute the Present value of this amount in order get the present value now.
Present Value of Sum Now at T = 0 Years = FV of Sum X PVIF @ R %, T Years
= 56600 X PVIF @ 14%, 7 years
= 56603 X 0.3996
= 22618.55
8. A 12 year payment annuity of Rs. 10,000 will begin 8 years. The first payment
occurs at the beginning of 8 years. What is the present value of this annuity if the
discount rate is 14 per cent?

Given: FV of Annuity Due in future

Calculate: Present Value of Annuity
Table: PVIF
Determine the Value of the Annuity a year before the first payment begins (Annuity at
the end of the period). This is 7 years from now.

Periods / Years Cash Flow or PVIFA @ R%, Present Value of

Annuity T Periods Cash Flow
T = Beg of 8th PV of Annuity at the end of 7 year or Beginning of 8th year =
th

Year 64524
 T= End of 8th Rs. 10000 PVIFA @ 14%, 10000 X 5.660
Year to T T= 12 years = 5.660 X 1.14 = 64524
End of 20th Year * (1+R)

Compute the Present value of this amount in order get the present value now.

Present Value of Sum Now at T = 0 Years = FV of Sum X PVIF @ R %, T Years

= 64524 X PVIF @ 14%, 7 years

= 64524 X 0.3996 = 25783.79

9. What is the present value of the following cash streams at the rate of 14 per cent
p.a?

Time / Period / Years Cash Flow

0 5000
1 6000
2 8000
3 9000
4 8000

Solution:

Time / Cash Flow PVIFA @ Present Value of

Period / Years 14%, T Periods Cash Flow
0 5000 1.000 5000.0
1 6000 0.8772 5263.2
2 8000 0.7695 6156.0
3 9000 0.6750 6075.0
4 8000 0.5921 4736.8
Total PV of Cash Flows 27231

10. Mahesh deposits 2, 00,000 Rs. in a bank account which pays 10 per cent per annum.
How much amount can he withdraw annually for a period of 15 years constantly at
the end of each year?
Given: Present Value of Sum
Calculate: Annuity in Future
2, 00,000 = A PVIFA @ 10%, 15 years
A = 2, 00,000 / 7.6061 = 26294.68
11. Exactly twenty years from now Mr. XYZ will start receiving a pension of 10,000 a
year. The payment will continue for twenty years. How much is pension worth now,
assuming money is worth 15 per cent per year?
Table: PVIF
i. Determine the Value of the Annuity a year before the first payment begins
(Annuity at the end of the period). This is 20 years from now.

Periods / Years Cash Flow or PVIFA @ R%, T Present Value of

Annuity Periods Cash Flow
T = Beg of 21st PV of Annuity at the end of 20 year or Beginning of 21st year =
th

Year 62593
T= End of 8th Year Rs. 10000 PVIFA @ 15%, 20 10000 X 6.2593 =
to T T= End of 20th years = 6.2593 62593
Year

ii. Compute the Present value of this amount in order get the present value now.
Present Value of Sum Now at T = 0 Years = FV of Sum X PVIF @ R %, T Years
= FV of Sum X PVIF @ 15 %, 20 Years
= 62593 X 0.0611 = 3824.23
12. Using an interest rate of 10 per cent, determine the present value of the following
cash flow series:

Sr. Period Cash PVIF or PVIFA Present Value

No. Flow
1 0 -10000 PVIF at 0 = 1 -10000 X 1=-10000
2 1 to 6 (each +2000 PVIFA @ 10% for 6 2000 X 4.3553 =
period end of the years =4.3553 8710.6
period)
3 7 -1500 PVIF @ 10%,7 years = -1500 X 0.5132 =
0.5132 -769.8
4 8 +1600 PVIF @ 10%,8 years = +1600 X 0.4665 =
0.4665 746.4
 5 9 to 12 (each +2500 Step 1: PVIFA @ 10%, = +2500 X 3.1699
period end of the 4 years = 3.1699 =7924.75
period) Step 2: PVIF @ 10%, 8 = 7924.75 *0.4665
years = 0.4665 = 3696.896
Total PV of Cash 2384.096
Flows

OR
Period Cash Flow PVIF @ 10%, T Present Value
0 -10000 1 -10000
1 +2000 0.9091 1818.2
2 +2000 0.8264 1652.8
3 +2000 0.7513 1502.6
4 +2000 0.6830 1366
5 +2000 0.6209 1241.8
6 +2000 0.5645 1129
7 -1500 0.5132 -769.8
8 +1600 0.4665 746.4
9 +2500 0.4241 1060.25
10 +2500 0.3855 963.75
11 +2500 0.3505 876.25
12 +2500 0.3186 796.5
Total PV of Cash Flows 2383.75

13. XY Company is thinking of creating a sinking fund to retire its 800,000 preference
share capital that matures on 31 December 2028. The company plans to put a fixed
amount into the fund at the end of each year for eight years. The first payment will
be made on 31 December 2021, and the last on 31 December 2028. The company
expects that the fund will earn 12 per cent a year. What annual contribution must
be made to accumulate 8, 00,000 as of 31 December 2028? What would be your
answer if the annual contribution is made in the beginning of the year, the first
payment being made on 31 December 2020?
Given: Future Value of Sum or Fund = Sinking Fund Amount = 2, 00,000
Calculate: Annuity in Present Term / Annual Contribution
2, 00,000 = A X FVIFA @ 10%, 15 years
A = 2, 00,000 / 7.6061 = 26294.68
Table = FVIFA @ 12%, 8 years = 12.300
Annuity = 8, 00, 000 / 12.300 = 65040.65 paid at the end of each year for 8 years
 Annuity = 8, 00, 000 / (12.300 X 1.12) = 58072.00

14. Mr Sundaram is planning to retire this year. His company can pay him a lump sum
retirement payment of 2, 00,000 or 25,000 lifetime annuity paid at the beginning of
each year—whichever he chooses. Mr. Sundaram is in good health and estimates to
live for at least 20 more years. If his interest rate is 12 per cent, which alternative
should he choose? Will your decision change if the Annuity is paid at the end of the
year?

25000 * PVIFA @ 20 years, 12 % = 25000 * 7.4694 *1.12 = 209143.2

Mr. Sundaram should prefer 25000 lifetime annuity.

If paid at the end of the period:

25000 * PVIFA @ 20 years, 12 % = 25000 * 7.4694 = 186735
Yes, decision will change of paid at the end of the period. Nor he should prefer 2 lakhs
lump sum.
15. Which alternative would you choose: (a) an annuity of 5,000 at the end of each year
for 30 years; (b) an annuity of 6,600 at the end of each year for 20 years; (c) 50,000,
in cash right now? In each case, the time value of money is 10 per cent.

Given Rate of Interest: 10%

(a) 30-year annuity 5,000

PVIFA, 10%, 30 year 9.4269

Present value of 30-year annuity = 5000 X 9.4269 = 47,134.6

(b) 20-year annuity 6,600

PVIFA, 10%, 20 year 8.5136

Present value of 20-year annuity = 6600 X 8.5136 = 56,189.52

(c) Cash right now 50,000

I will Prefer Option (b)

16. Ms Punam is interested in a fixed annual income. She is offered three possible
annuities. If she could earn 8 per cent on her money elsewhere, which of the
following alternatives, if any, would she choose? Why? (i) Pay 80,000 now in order
to receive `14,000 at the end of each year for the next 10 years. (ii) Pay 1, 50,000 now
in order to receive `14,000 at the end of each year for the next 20 years. (iii) Pay 1,
20,000 now in order to receive 14,000 at the end of each year for the next 15 years.
Interest rate 8%
(i) Amount now or 80,000
10-year annuity 14,000
PVIFA, 8%, 10 year 6.7101
Present value of 10-year annuity [14,000 × 6.7101] = 93,941
Ms. Punam should choose 10-year annuity offering higher PV.
(ii) Amount now or 150,000
20-year annuity 14,000
PVIFA, 8%, 20 year 9.8181
Present value of 20-year annuity [14,000 x 9.8181] = 137,454
Ms. Punam should choose to have Rs 150,000
(iii) Amount now or 120,000
15-year annuity 14,000
PVIFA, 8%, 15 year 8.5595
Present value of 15-year annuity [14,000 × 8.5595] = 119,833
Both alternatives are almost the same.

17. Determine the future values utilizing a time preference rate of 9 per cent per annum
when:

(i) The future value of 15,000 invested now for a period of four years.
FV for Lump Sum = PV of Sum * FVIF@ 9%, 4 years = 15000 *1.4116 = 21174

(ii) The future value at the end of five years of an investment of 6,000 now and of an
investment of 6,000 one year from now.
 Future value at the end of five years of an investment of 6,000 now:
FV @ 5 year = PV * FVIF @ 9%, 5 year = 6000 * 1.5386 = 9231.6

Future value at the end of five years of an investment of 6,000 one year from now.
FV @ 4 year = PV * FVIF @ 9%, 4 year = 6000 * 1.4116 = 8469.6

(iii) The future value at the end of eight years of an annual deposit of 18,000 each
year.
FV of Annuity = Annuity * FVIFA @ 9%, 8 years = 18000 * 11.028 = 198504

(iv)The future value at the end of eight years of annual deposit of 18,000 at the beginning of
each year. (Annuity Due)
FV of Annuity Sue = Annuity * FVIFA @ 9%. 8 year * 1.09 = 18000 * 11.028 * 1.09 =
216369.36

(v) The future values at the end of eight years of a deposit of 18,000 at the end of the first
four years and withdrawal of 12,000 per year at the end of year five through seven.

Year / Calculations Future Value Withdrawal Outstanding

Period Balance
1 to 4 FV of Annuity 18000 * FVIFA @ - =18000 *
year 9%, 4 years 4.5731= 82315.8
5 year FV of deposit at 82315.8*1.09 = 12000 77724.22
end of 5 year 89724.22
6 year FV of deposit at 77724.22 * 1.09 = 12000 72719.40
end of 6 year 84719.4
7 year FV of deposit at 72719.40 *1.09= 12000 67264.14
end of 7 year 79264.14
8 year FV of deposit at 67264.14*1.09= - 73318.9
end of 8 year 73318.9

18. Compute the present value of each of the following cash flows using a discount rate
of 13 per cent p.a.:

(i) 2,000 cash outflow immediately.

2000 *1 = 2000. As there will be no discounting as the 2000 cash outflow on immediate
basis.
(ii) 6,000 cash outflow four years from now
PV of Lump sum = 6000 * PVIF @ 13%, 4 years = 6000 * 0.6133 = 3679.8

(iii) 4,000 cash outflow at the end of each of the next five years
PV of Annuity = Annuity * PVIFA @ 13%, 5 years = 4000 * 3.5172 = 14068.8

(iv) 4,000 cash outflow at the beginning of each of the next five years
PV of Annuity Due = Annuity * (PVIFA @ 13%, 5 years *1.13) = 15897.7

19. Determine the present value of the cash outflows from a X project of 3,000 at the
end of each year for next 4 years and 7,000 and 1,000 respectively, at the end of
years 5 and 6. The appropriate discount rate is 14 per cent p.a.

Year / Period Cash PVIF PV

Flow
1 3000 = A * PVIFA @ 14%, 4 years 8741.1
2 3000 = 3000 * 2.9137
3 3000
4 3000
5 7000 = 7000 * PVIF @ 14%, 5 = 7000*0.5194= 3635.8
years
6 1000 = 1000 * PVIF@14%,6 years = 1000 * 0.4556=
455.6
Total PV of Cash Outflows Flows 12832.5

Suppose an investor required to invest Rs.10000 /- in the X project. What would be the
decision?

As the present value of the cash flows from the project is more than the present value of
the investment i.e.; 12832.5 is more than 10000. Decision is to invest in the Project.

20. Assume an annual rate of interest of 15 per cent p.a. The sum of 100 received
immediately is equivalent to what quantity received in ten equal annual payments,
the first payment to be received one year from now? What could be the annual
amount if the first payment were received immediately?

Case I: Annuity @ End of Year

 PV of Cash = Rs. 100
Rate of Interest = 15%
No of years = 10 years
Annuity @ End of Year OR Installment @ End of Year
Installment = 100 * Capital Recovery Factor
Capital Recovery Factor = 1/ PVIFA @ 15%, 10 years = 1/5.0188 = 0.1992
Annuity = 100 / 5.0188 = 19.92

Case II: Annuity @ Beg of year

PV of Cash = Rs. 100
Rate of Interest = 15%
No of years = 10 years
Annuity @ Beg of year OR Installment @ Beg of year
Capital Recovery Factor = 1/ (PVIFA @ 15%*1.15), 10 years = 1/ (5.0188 *1.15) =
1/5.7716 = 0.1733
Annuity Due = 100 *0.1733 = 17.33

Annual amount with the same annual rate of interest 15 per cent p.a. and the 10 years
differs if the Annuity is paid at the beginning of period or at the end of the period. If the
Annuity is paid at the beginning of the year the interest accumulated will be less therefore
the Annuity amount would be less than annuity at the end of the year. 17.33 is less than
19.92.

21. We can make an immediate payment now of 13,000 or pay equal amount of A for
the next 5 years, first payment being payable after 1 year. (a) With a time value of
money of 12 per cent, what is the maximum value of A that we would be willing to
accept? (b) What maximum value of A we would be willing to accept if the
payments are made in the beginning of the year?

Case I: Annuity @ End of Year

PV of Cash = Rs. 13000
Rate of Interest = 12%
No of years = 5 years
Capital Recovery Factor = 1 / PVIFA @ 12%, 5 years = 1/3.6048 = 0.2774
Annuity = 13000 / 3.6048 = 3606.33
The maximum value of Annuity that we would be willing to pay if Annuity is to be paid
at the end of the period is Rs. 3606.33. Any annuity or installment amount more than
3606.33 is not acceptable.
 Case II: Annuity @ Beg of year
PV of Cash = Rs. 13000
Rate of Interest = 12%
No of years = 5 years
Capital Recovery Factor = 1/ (PVIFA @ 12%, 10 years *1.12) = 1/ (3.6048* *1.12) =
1 / 4.0373 = 0.2477
Annuity Due = 13000 *0.2477 = 3219.93

The maximum value of Annuity that we would be willing to pay if Annuity is to be paid
at the beginning of the period is Rs. 3219.33. Any annuity or installment amount more
than 3219.33 is not acceptable.

22. Assume that you are given a choice between incurring an immediate outlay of
10,000 and having to pay 2,310 a year for 5 years (first payment due one year from
now); the discount rate is 11 per cent. What would be your choice? Will your
answer change if 2,310 is paid in the beginning of each year for 5 years?

Option I: 10000 to be paid now.

Option II: 2310 for 5 years.

Case I: Annuity @ End of Year

PV of Cash = Rs. 10000
Rate of Interest = 11%
No of years = 5 years
Capital Recovery Factor = 1 / PVIFA @ 11%, 5 years = 1/3.6959 = 0.2706
Annuity = 10000 / 3.6959 OR 10000 * 0.27057 = 2705.7

The maximum value of Annuity that we would be willing to pay if Annuity is to be paid
at the end of the period (first payment due one year from now) is Rs. 2705.7. Any annuity
or installment amount more than 2705.7 is not acceptable but less is always preferred. In
the present case the Annuity payment offered is way less than 2705.7. Therefore we
would prefer the second option to pay 2310 a year for 5 years as comparison to 10000
today.

Case II: Annuity @ Beg of year

PV of Cash = Rs. 10000
Rate of Interest = 11%
No of years = 5 years
 Capital Recovery Factor = 1/ (PVIFA @ 11%, 5 years *1.11) = 1/ (3.6959 *1.11) =
1 / 4.1024 = 0.243759
Annuity Due = 10000 / 4.1024 = 10000*0.223759 = 2437.59

The maximum value of Annuity that we would be willing to pay if Annuity is to be paid
at the beginning of the period for 5 years is Rs. 2437.59. Any annuity or installment
amount paid at the beginning of the period more than 2437.59 is not acceptable but less is
always preferred. Therefore, our answer will not change. Therefore we would prefer the
second option to pay 2310 a year for 5 years as comparison to 10000 today.

Present Value of annuity = 2310 * PVIFA @ 11%, 5 years = 2310 * 3.6959 = 8537.529
Present Value of Annuity Due = 2310 * 3.6959 * 1.11 = 9326.33

23. Compute the present value for a bond that promises to pay interest of 150 a year for
thirty years and 1,000 at maturity. This first interest payment is paid one year from
now. Use a rate of discount at 8 per cent.
Present Value for a Bond = 150 PVIFA @ 8%, 30 years + 1000 PVIF @ 8%, 30 years
= 150 * 11.2578 + 1000 * 0.0994 = 1788

24. Jai Chand is planning for his retirement. He is 45 years old today, and would like to
have 3, 00,000 when he attains the age of 60. He intends to deposit a constant
amount of money at 12 per cent each year in the public provident fund in the State
Bank of India to achieve his objective. How much money should Jai Chand invest at
the end of each year, for the next 15 years, to obtain 3, 00,000 at the end of that
period?
Needed future sum after 15 years 300,000
Period (years) 15
Interest rate 12%
FVIFA = Future value interest factor of an annuity, 15 years, 12% = 37.28
A= 3, 00,000 / 37.28 = 8047.21

25. You buy a house for 5 lakh and immediately make cash payment of 1 lakh. You
finance the balance amount at 12 per cent for 20 years with equal annual
instalments. How much are the annual instalments? How much of the each payment
goes towards reducing the principal?
Price of house 500,000
Cash payment 100,000
Balance 400,000
Instalment period 20
Interest rate 12%
Present value of an annuity factor, 20 years, and 12% 7.4694
Annual instalment = 400,000 / 7.4694= 53,551.51

Note: Amortization Schedule prepare accordingly for the same as discussed in class.