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1
RULE OF 72
72 / % = number of years to double
investment
If you earn 10% on your money per year, how long will it take to double your
investment?
72 / 10 = 7.2 years
ANNUITIES
Find the future value of four $100 payments made at the end of each year for four years if
you earn 10%per year.
FV = $100(1+.10)3 + $100(1+.10)2 +$100(1+.10)1 +$100
FV = $100[(1+.10)3 + (1+.10)2
+ (1+.10)1 + 1]
FV = $100(4.6410) = $464.10
Financial Calculator
2nd FV (clear calculator)
4 N (4 payments)
10 I/Y (10% interest)
- 100 PMT (100 payments)
CPT FV (Calculates future value = $464.10)
Find PV
4N
10 I/Y
100 PMT
CPT PV (PV=-316.99)
Find PMT
10000 Loan 10% 5 year monthly payments
5*12 = 60 N
10/12 I/Y
-10,000 PV
CPT PMT (212.47)
2
ANNUITIES
Find the present value of four $100 payments made at the end of each of the next four
years earning a return of 10% per year.
PV = 100(1/1+.1)1 + 100(1/1+.1)2 + 100(1/1+.1)3 + 100(1/1+.1)4 =
PV = 100[(1/1+.1)1 + (1/1+.1)2 +(1/1+.1)3 + (1/1+.1)4] = 100(3.1698) = $316.98
Financial Calculator
2nd FV (clears calculator)
4 N (4 payments)
10 I/Y (10% interest)
100 PMT ($100 payments)
CPT PV (calculates present value = 316.98)
TIME VALUE OF MONEY
PERPETUITIES
Find the present value of $100 payment made at the end of each and every year forever if
it earns 10% interest per year.
3
45976 Enter [C02= 45976]
↓ [F02= 1.000]
↓ [C03 0.0000]
35928 Enter [C03= 35928]
↓ [F03= 1.000]
↓ [C04 0.0000]
54964 Enter [C04= 54964]
NPV [I = 0.00000]
10 Enter [I = 10.0000]
↓ [NPV= 0.0000]
CPT [NPV= 31,923.8112]
IRR [IRR= 0.0000]
CPT [IRR= 22.4824]