Assignment -1

Sub :-Financial Management

Topic :- Future & Present Value.

Submitted To:-

Submitted By :-

Future Value
Future Value (FV) is a formula used in Finance that

calculates the future value of an amount that is received prior to the future date. The premise of the Future Value equation is that there is "time value of money". Time value of money is the concept that receiving something of value today is worth more than receiving the same item at a future date. The presumption is that it is preferable to receive $100 present day than it is to receive the same amount one year from today, but what if the choice is between $100 present day or $106 a year from today? A formula is needed to provide a quantifiable comparison between an amount today and an amount at a future time, in terms of its future value. The Future Value formula shown provides the "time value of money" in mathematical terms.

Use of Future Value

The Future Value formula has a broad range of uses

and may be applied to various areas of finance including corporate finance, banking finance, and investment finance. Apart from the various areas of finance that future value analysis is used, the future value formula is also used as a component of other financial formulas.

Alternative Formula
FV=C0 *(1+r)n C0 =Cash flow at period 0 r= rate of return n = number of periods

Example of Future Value Formula

An individual wishes to determine how much money he

would have in his money market account one year from today if he is earning 5% interest on his account, simple interest, with a current balance of Rs.100. The Rs.100he has today denotes the C0 portion of the formula, 5% would be r, and the number of periods would simply be 5. Putting this into the formula, we would have:

Future Value =100*(1+5%)5 =100*(1+.05)5 =100*(1.05)5 =100*1.28 =Rs. 128

Present Value
Present Value (PV) is a formula used in Finance

that calculates the present day value of an amount that is received at a future date. The premise of the equation is that there is "time value of money". Time value of money is the concept that receiving something today is worth more than receiving the same item at a future date. The presumption is that it is preferable to receive $100 today than it is to receive the same amount one year from today, but what if the choice is between $100 present day or $106 a year from today? A formula is needed to provide a quantifiable comparison between an amount today and an amount at a future time, in terms of its present day value.

Use of Present Value Formula

The Present Value formula has a broad range of uses

and may be applied to various areas of finance including corporate finance, banking finance, and investment finance. Apart from the various areas of finance that present value analysis is used, the formula is also used as a component of other financial formulas.

Alternative Formula

Example of Present Value Formula

An individual wishes to determine how much

money she would need to put into her money market account to have Rs.100 one year today if she is earning 5% interest on her account, simple interest. The Rs.100 she would like one year from present day denotes the C1 portion of the formula, 5% would be r, and the number of periods would simply be 5. Putting this into the formula, we would have

Present Value

= 100*1 (1+5%)5 = 100*1 (1+0.05)5 = 100*1 (1.05)5 =100*1 (1.28) = 100 * 0.78 = Rs. 78

 Akash Tiles has taken a loan from ICICI finance ltd.

Rs.33,21,000 in 2011 Interest in amount @ 8%. =After the 5 year in 2016 the amount of the company has pay Rs. =33,21,000*(1+8%)5 = 33,21,000 * 1.46 = Rs.48,48,660

 Company future amount of Rs.48,48,660 in 2016.

Interest on amount is given 8% So in present value 2011 is =4848660*1/(1+8%)5 =4848660*1/(1.08)5 =4848660/1.46 = Rs. 33,21,000.