Time value of money

1. FV/PV

2. Continuously e=2.71828

3. Compounding more than once in a year (semi annual m=2 , quarterly m=4)
Example – Future value

Example 1

Omar wants to know how much money he needs to invest today at an annual interest of 10%
compounded continuously to have AED 50,000 in 5 years. Compute how much money Omar
needs to invest today. Write down any formula used and provide step by step calculation. 

Example 2
Abdulaziz has AED 10,000 and wants to invest it for the next 5 years. If he is getting an annual
interest of 10% from the investment. How much will he have in 5 years? Write down any formula
used and provide step by step calculation.   

Exercise 3
In 10 years Maryam will have AED 20,000. If the annual discount rate is 10% what is
today’s discount value? Write down any formula used and provide step by step
calculation.               
            
Exercise 4
In 10 years Mahra will have AED 40,000. If the annual discount rate is 10% what is
today’s discount value? Write down any formula used and provide step by step
calculation.
Exercise 5
Shaikha has AED 20,000 and wants to invest it for the next 5 years. If she is getting an annual
interest of 10% (10/100 = 0.1)from the investment. How much will she have in 5 years?

Exercise 6
Khalifa wants to know how much money he needs to invest today at an annual interest
rate of 5% for 10 years to have AED 60,000. Compute how much money Khalifa needs
to invest today. Write down any formula used and provide step by step calculation.
 

Example – Continuous compounding

Exercise 7
Khalid wants to know how much money he needs to invest today at an annual interest of 10%
(10/100 =0.1) compounded continuously to have AED 20,000 in 5 years. Compute how much
money Omar needs to invest today. Write down any formula used and provide step by step
calculation.   

Exercise 8
Salama will like to invest AED 20,000 at an annual interest of 5% compounded continuously
for 5 years. How much money will Mouza have in 5 years? Write down any formula used and
provide step by step calculation.  

Example - Compounding More Than Once a Year

Exercise 9

Muna has been approached by an Investment bank. The bank advised Muna that if she
invests AED 40,000 at an interest of 10% compounded semi-annually for 5 years she
will have a very good return. How much will Muna have in 5 years? Write down any
formula used and provide step by step calculation
Exercise 10
Salama expects to have 60,000 in her account after 5 yrs. The bank is offering her a discount of 10% and
is compounding semi annually. Calculate how much should Salama invest in todays value.