Time value of money

Simple interest:
The interest is paid or received only on the principle amount.

I = Pin F = P (1 + in)

(I= Total interest)

Where, F = Future value, i = interest rate, P = Present value and n = number of time.

Problem: If you put tk. 1000 in a bank @ 15 % interest rate for 5 years, a) how much will
you get at the end of the maturity? b) What will be the total interest?

Compound interest: (compounding)

The interest is paid or received on the principle amount and on the interest earned previously.

F=
Where, F = Future value, i = interest rate, P = Present value and n = number of time.

Total compounding interest = F P.

Problem: Suppose that you put tk. 1000 in a local bank @ 10 % interest rate
compounded for a period of 5 years. At the end of the maturity of your contract a) what sum of money will you get in total and b) What will be the compounded interest after 5 years?

In case of compounded fraction:

F=

where, m =compounded Monthly (12), Quarterly (4), Semiannually (2) and Bi-monthly (24) For example, if compounded semiannually then, F =
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Time value of money

Problem: Suppose that you put tk. 1000 in a local bank @ 12 % interest rate
compounded monthly for a period of 10 years. At the end of the maturity of your contract a) what sum of money will you get in total after 10 years?

Discounting:
Means returning to the present value from the future value / finding present value. From compounding we get,

F= Or, = F

Therefore, P =

[Discount factor =

Problem: Completing your graduation after 5 years you will get tk. 1610. If the
discounting rate is @ 10% p.a how much should you aside now for that purpose?

More extra Problems:

a) After depositing tk. 1000 now you will receive tk. 1610 at 10% interest rate compounded yearly. How much time will it take? b) Exactly five years from now you will withdraw tk. 1610 from a bank after depositing tk. 1000 today. What is the compounded interest rate the bank has to pay you?

Annuity:
Is the series of cash received or paid in equal installments with equal interval of time for a particular period. (There is no PV and FV at the same time. Either PV or FV and installment).

a) Present value of installments:

Finding the present value of future cash installments.

[Md. Nasir Uddin, BBA,MBA(Finance),DU]Cell:01924756594.

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Time value of money

For example, your father will have to pay tk. 500 monthly for about 10 years to the United Leasing Company if the company builds a building for your father. In figure:
1 month interval

Present value Formula:

Taking all the 500 500 500 500 500 500 500 500 500 500 installment .. Cash installment in future.

P= P=

[ [

(when installment is made at the yearend) ] (when installment is made in the beginning)

Where, P= Present value, A= Installment, R= Interest rate, N= Number of time. b) Future value of installments:
Finding the future value of present cash installments For example, you have to pay tk. 100 monthly for about 10 years to get a sum of money from bank. In figure:

Taking all 100 100 100 100 100 100 100 100 100 100 the installment
1 month interval

Future value

.. Cash installment in present.

Formula: F=
( )

(when installment is made at the yearend)

)

F=

(when installment is made in the beginning)

{Present value annuity factor = [

]}

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Time value of money

If this is helpful to you dont forget to mail me at: nasir_findu@yahoo.com

[Md. Nasir Uddin, BBA,MBA(Finance),DU]Cell:01924756594.

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