MINGGU 2 & 3

MANAJEMEN KEUANGAN I
Pokok Bahasan:
1. Konsep Dasar Keuangan
2. Nilai Waktu Uang
3. Nilai Sekarang dan Risiko
4. Nilai Sekarang da Tingkat Pengembalian
Tujuan Instruksional Khusus:
Mahasiswa mampu:
1. Menghitung nilai uang
2. Menghitung risiko dan nilai sekarang
3. Menghitung nilai sekarang dan tingkat pengembalian
Referensi:
1. Gitman, Lawrence J., (2003), “Principles of Managerial
Finance”, 10th ed., Addison-Wesley Word Student. (Chap 5)
2. Bearley & Myers, (2003), “Principles of Corporate Finance”,
7th ed. Mcraw Hill Inc. (Chap 2&3)

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 Chapter 4 Time Value of Money

Learning Goals
1. Discuss the role of time value in finance, the use of computational
aids, and the basic patterns of cash flow.
2. Understand the concept of future value and present value, their
calculation for a single amounts, and the relationship of present
value to future value.
3. Find the future value and the present value of both an ordinary
annuity and an annuity due, and the present value of a
perpetuity.
4. Calculate both the future value and the present value of a mixed
stream of cash flows.
5. Understand the effect that compounding interest more frequently
than annually has on future value and the effective annual rate of
interest.
6. Describe the procedures involved in (1) determining deposits to
accumulate to a future sum, (2) loan amortization, (3) finding
interest or growth rates, and (4) finding an unknown number of
periods.

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 The Role of Time Value in Finance
• Most financial decisions involve costs & benefits
that are spread out over time.
• Time value of money allows comparison of cash
flows from different periods.

Answer!
It depends on the interest rate!

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 Time Value Terms
• PV0 = present value or beginning
amount
• k = interest rate
• FVn = future value at end of “n”
periods
• n = number of compounding
periods
• A = an annuity (series of equal
payments or receipts)

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 Four Basic Models
• FVn = PV0(1+k)n = PV(FVIFk,n)

• PV0 = FVn[1/(1+k)n] = FV(PVIFk,n)

• FVAn = A (1+k)n - 1 = A(FVIFAk,n)

k

• PVA0 = A 1 - [1/(1+k)n] = A(PVIFAk,n)

k

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 Compounding More Frequently
than Annually
• Compounding more frequently than once a year
results in a higher effective interest rate because you
are earning on interest on interest more frequently.
• As a result, the effective interest rate is greater than the
nominal (annual) interest rate.
• Furthermore, the effective rate of interest will increase
the more frequently interest is compounded.

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 Compounding More Frequently
than Annually
• For example, what would be the difference in future
value if I deposit $100 for 5 years and earn 12% annual
interest compounded (a) annually, (b) semiannually,
(c) quarterly, an (d) monthly?
Annually: 100 x (1 + .12)5 = $176.23
Semiannually: 100 x (1 + .06)10= $179.09
Quarterly: 100 x (1 + .03)20= $180.61
Monthly: 100 x (1 + .01)60= $181.67

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 Compounding More Frequently
than Annually
On Excel
Semi
Annually Quarterly Monthly
Annually
PV $ 100,00 $ 100,00 $ 100,00 $ 100,00
k 12,0 % 0,06 0,03 0,01
n 5 10 20 60
FV $ 176,23 $ 179,08 $ 180,61 $ 181,67

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 Continuous Compounding
• With continuous compounding the number of
compounding periods per year approaches infinity.
• Through the use of calculus, the equation thus becomes:

FVn (continuous compounding) = PV x (ekxn)

where “e” has a value of 2.7183.

• Continuing with the previous example, find the Future

value of the $100 deposit after 5 years if interest is
compounded continuously.

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 Continuous Compounding
• With continuous compounding the number of
compounding periods per year approaches infinity.
• Through the use of calculus, the equation thus
becomes:
FVn (continuous compounding) = PV x (ekxn)
where “e” has a value of 2.7183.

FVn = 100 x (2.7183).12x5 = $182.22

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 Nominal & Effective Rates
• The nominal interest rate is the stated or
contractual rate of interest charged by a
lender or promised by a borrower.
• The effective interest rate is the rate actually
paid or earned.
• In general, the effective rate > nominal rate
whenever compounding occurs more than
once per year
EAR = (1 + k/m) m -1

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 Nominal & Effective Rates

• For example, what is the effective rate of interest on

your credit card if the nominal rate is 18% per year,
compounded monthly?

EAR = (1 + .18/12) 12 -1
EAR = 19.56%

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Sekolah Tinggi Ilmu Ekonomi Minggu 02-03 Page 12
 Present Value
• Present value is the current dollar value of a future
amount of money.
• It is based on the idea that a dollar today is worth
more than a dollar tomorrow.
• It is the amount today that must be invested at a
given rate to reach a future amount.
• Calculating present value is also known as
discounting.
• The discount rate is often also referred to as the
opportunity cost, the discount rate, the required
return, or the cost of capital.

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 Annuities
• Annuities are equally-spaced cash flows of equal
size.
• Annuities can be either inflows or outflows.
• An ordinary (deferred) annuity has cash flows that
occur at the end of each period.
• An annuity due has cash flows that occur at the
beginning of each period.
• An annuity due will always be greater than an
otherwise equivalent ordinary annuity because
interest will compound for an additional period.

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 Present Value
of a Perpetuity
• A perpetuity is a special kind of annuity.

• With a perpetuity, the periodic annuity or cash flow

stream continues forever.
PV = Annuity/k
• For example, how much would I have to deposit today
in order to withdraw $1,000 each year forever if I can
earn 8% on my deposit?

PV = $1,000/.08 = $12,500

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 Annuities
TABLE 4.1 Comparison of Ordinary Annuity
and Annuity Due Cash Flows
($1,000, 5 Years)
Annual Cash Flows
End of yeara Annuity A (ordinary) Annuity B (annuity due)
0 $ 0 $ 1,000
1 1,000 1,000
2 1,000 1,000
3 1,000 1,000
4 1,000 1,000
5 1,000 0
Totals $ 5,000 $ 5,000

The ends of years 0,1,2,3,4, and 5 are equivalent to the beginning of years 1,2,3,4,5,
and 6, respectively

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Loan Amortization

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