AN OVERVIEW OF BUSINESS MATHEMATICS: TIME VALUE OF MONEY

I) FUTURE / PRESENT VALUE CALCULATION (SINGLE CASH FLOW):

1. What will be the future value (FV) of Tk. 5,000 deposited today after 5 years at 10% annual interest rate?
FVn = PV (1+ k)n
2. You will inherit Tk. 2,000,000 after 10 years. At 10% annual interest rate what is the present value (PV) of
that?
PVn = FV/ (1+ k)n
3. Your investment of Tk. 500,000 grew to Tk. 800,000 in 2 years. What percentage of interest (k) did you
earn on that investment?
k = (FV/PV)1/n 1
4. How many years (n) will it take for an investment to grow from Tk. 1,000,000 to grow to Tk. 5,000,000 at
10% interest per annum?
n = log (FV/PV) / log (1+k)
5. For a savings account ABC Bank pays interest 10% per annum, compounded (q) quarterly. If you deposit
Tk. 100,000 in that account, how much you will get after 2 years?
FVn = PV(1 + k/q)nq
6. Your target is to have Tk. 1,000,000 as savings after 5 years. XYZ Bank has a savings product which will
give you 12% interest per annum, compounded (q) monthly. How much money you need to deposit today
in order to achieve your target in five years?
PVn = FV / (1 + k/q)nq
7. Calculate the effective interest rate (EIR) for an account yielding nominally 12% per annum, compounded
monthly.
EIR = (1 + k/q)q -1
II) FUTURE/ PRESENT VALUE OF AN ANNUITY (MULTIPLE, CONSTANT CASH FLOWS):
8. You have decided to deposit Tk. 100,000 in a savings account at the end of each year for next 30 years of
your working life. The money can be invested at an interest rate of 10% p.a. How much you will save in 30
years?
FVAn= PMT [{(1+k)n 1} / k]
9. What is the present value (PVA) of the investment that will pay you Tk. 100,000 at the end of each year for
next 5 years? Assume interest rate will be 12% per annum.
PVAn= PMT [{1- 1/ (1+k)n} / k]
10. You have decided to save Tk. 5,000 in a savings account at the end of each month (q) for next 30 years.
The money can be invested at an interest rate of 7% a year. How much you will be able to save in 30 years?
FVAn= PMT [{(1+k/q)nq 1} (k/q)]
11. How much money you must have today in order to withdraw Tk. 5,000 at the end of each month (q) for
next 30 years? Assume an interest rate of 10% p.a.
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PVAn= PMT [{1- 1/ (1+k/q)nq} (k/q)]

Installment (PMT) Calculation: Annuities

12. In order to have Tk. 10,000,000 after 15 years from now, how much you should save per month at 8%
interest rate p.a?
PMT = FVAn [{(1+k/q)nq 1} (k/q)]
13. If you take out a Tk. 1,000,000 car loan for five years at an interest of 18%, who much you will have to pay
per month as installment?
PMT = PVAn [{1- 1/ (1+k/q)nq} (k/q)]
III) PRESENT VALUE CALCULATION: PERPETUITIES
a) Present value calculation: Perpetuity with no growth
14. What is the present value (PV) of an investment that will give you Tk. 60,000 at the end of each year
forever at 12% required return?
PV = PMT / k
b) Present value calculation: Perpetuity with constant growth
15. Your friend wants you to invest in his business. He told you that he will give you Tk. 100,000 as profit at
the end of the first year. Thereafter, he promises to pay 5% more each year forever. If your required rate of
return is 12% p.a., how much should you pay for this investment opportunity?
PV = PMT1 / k - g
IV) PRESENT VALUE CALCULATION (COMPLEX CASH FLOWS)
16. Calculate the present value of the following year-end cashflows. The discount rate is 12% p.a.
Cashflows
Year

0
1

200
2

200
3

200
4

200
5

200
6

500
7

500
8

500
9

.500

17.
Y
ou are planning to retire in 30 years. You plan to spend Tk. 100,000 a month in retirement, which should
last for about 25 years. If you could earn 8% p.a on your retirement savings, how much you will need to
save per month for next thirty years?

Solving problems using MS Excel

Open MS Excel => Go to insert pull down menu => click on Function (fx) => select a category =>
Financial => try PV, FV, NPER, RATE, PMT formula.
Try to solve all the problems using MS Excel.

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