Time Value of Money

Compounding
Compound Interest and Present Value
• Question 1
• Present Value=PV=?
• Future Value=FV=25000
• Interest Rate=8% (Compound Semiannually)
• Time=n=20 Years
• FV= PV(1+r)^n
• 25000=PV(1+8%/2)^20*2
• PV=25000/(1+4%)^40
• $5207.24
Compound Interest and Present Value
• Question 2
• Present Value=PV=?
• Future Value=FV=8425
• Interest Rate=9% (Compound monthly)
• Time=n=1.5 Years
• FV= PV(1+r)^n
• 8425=PV(1+9%/12)^12*1.5
• PV=8425/(1+0.75%)^18
• $7365.15
• Total Interest to pay=8425-7365=$1060
Compound Interest and Present Value
• Question 3
• Present Value=PV=?
• Future Value=FV=$ 6250
• Interest Rate=8% (Compound quaterly)
• Time=n=3 Years
• FV= PV(1+r)^n
• 8425=PV(1+8%/4)^3*4
• PV=6250/(1+2%)^12
• $4928
Compound Interest and Present Value
• Question 4
• Present Value=PV=?
• Future Value=FV=$ 100000
• Interest Rate=10% (Compound annually)
• Time=n=25 Years
• FV= PV(1+r)^n
• 100000=PV(1+10%)^25
• PV=100000/(1.10)^25
• $9229.60
Compound Interest and Present Value
• Question 5
• Present Value=PV=?
• Future Value=FV=$ 27500
• Interest Rate=4% (Compound quarterly)
• Time=n=6.5 Years
• FV= PV(1+r)^n
• 9600=PV(1+1%)^1.5*4
• PV=9600/(1.01)^6
• $25906
Compound Interest and Present Value
• Question 6
• Present Value=PV=?
• Future Value=FV=$ 6000
• Interest Rate=8% (Compound quarterly)
• Time=n=6 Years
• FV= PV(1+r)^n
• 9600=PV(1+8%/2)^6*2
• PV=9600/(1.04)^12
• $3748
• I=FV-PV=6000-3748=2252
Compound Interest and Present Value
• Question 7
• Present Value=PV=?
• Future Value=FV=$ 30000
• Interest Rate=6% (Compound semianually)
• Time=n=3 Year
• FV= PV(1+r)^n
• 9600=PV(1+6%/2)^3*2
• PV=30000/(1.03)^6
• $25125
Compound Interest and Present Value
• Question 8
• Present Value=PV=?
• Future Value=FV=$5000
• Interest Rate=9% (Compound monthly)
• Time=n=21 months
• FV= PV(1+r)^n
• 50000=PV(1+9%/12)^1.75*12
• PV=5000/(1.0075)^21
• $ 5000/1.1698
• $ 4274.23