TVM Concepts Explained

LBSIM-PGDM(General) Batch 2014-16
Time Value of Money
Time Value of Money

Cash flow occurring at the end of 2nd year is not equal
to the cash flow occurring now because of Time Value
of Money (TVM).
Why TVM?
Inflation - value of currency decreases over time.
Preference for present consumption over future
consumption- to induce people to give up present
consumption, you have to offer them more in the
future.
Uncertainty about the future - higher uncertainty (risk)
means less valuable the future cash flow.
Thus, the cash flows occurring in different time periods

have to be made comparable.
2
Dr Pankaj Varshney
Time Line
Cash Flows at-the-end of period
Cash Flows of Rs 1000/- each at Year-end for 4 years
1000
0
Period 1
1000
Period 2
1000
Period 3
1000
Period 4
Cash Flows at-the-beginning of period

Cash Flows of Rs 1000/- each at Year-beginning for 4 years
1000
0
Period 1
1000
1000
1000
Period 2
Period 3
Period 4
Time Value of Money

Take todays cash flows into the future : Future Value
0
5
FV
@ r%
Bring future cash flows to todays value: Present Value
0
P
3
@ r%
5
FV
Dr Pankaj Varshney
Future Value
0
5
FV
@ r%
Future Value of amount P , after n years would be:

FVn = P*(1+r)n
0
P = 1,000
3
@ 5%
Future Value Interest Factor

[FVIF (n,r)]
4
5
FV = 1,276.28
1000*(1.05)5
Future Value
Values of FVIF for various combinations of r and n are
given in Future Value Interest Factor tables.
FVIF (5 yrs,5%)
Dr Pankaj Varshney
Future Value (Contd.)

If you invest Rs.80,000/- @ 14%p.a., how much would it amount to
in 5 years?
Future Value of Rs. 80,000/- @14% after 5 years would

be: 80,000*(1+0.14)5 or 80,000*FVIF (5 years,14%)
= 80,000*1.9254 = Rs 1,54,033/-
1,54,033
80,000
0
Future Value (Contd.)
Dr Pankaj Varshney
Future Value
=FV(Interest Rate, Time,, Present
Value,0(or1))
Compounding Rate (r)
Time Period (N)
Present Value (PVN)
Returns the Future Value

9
Future value
5900
Higher the interest rate, faster the savings grow
5400
18%
Future Value
4900
4400
15%
3900
3400
12%
2900
10%
2400
8%
1900
5%
1400
900
1
10
Years
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Dr Pankaj Varshney
Compounding more than once a year

Interest may be paid more than once a year.
Future Value is :
r
FVn = P*(1+
)n*m
m
where m is no. of times interest is paid.
If you invest Rs.80,000/- @ 14%p.a., how much would it amount to

in 5 years, if interest is compounded (a)semi-annually, (b) quarterly?
Frequency
Semi-Annually
m Future Value
2 80000*(1+0.14/2)(5*2) = 80000*(1.07)(10)
= 80000*1.9672 = 1,57,372/-
Quarterly
80000*(1+0.14/4)(5*4) = 80000*(1.035)(20)
= 80000*1.9898 = 1,59,183/11
Compounding more than once a year

As m approaches infinity, the term (1+r/m)n*m approaches er*n,
1 m
)
where e is approx. 2.71828 and is defined as e=limit(1+
m
m
Future Value on continuous compounding basis is:

FVn = P*er n
If you invest Rs.80,000/- @ 14%p.a., how much would it amount
to in 5 years, if interest is continuously compounded?
Future Value on continuous compounding would be:
80000*e0.14*5 = 80000*2.0138 = 1,61,100/12
Dr Pankaj Varshney
Nominal vs. Effective Interest Rate
Frequency (m)
Annual
1
Semi-annual 2
Quarterly
4
Monthly
12
Daily
365
Continuous
Nominal
Rate
10%
10%
10%
10%
10%
10%
Future
Value
1100.00
(1.10)-1
1102.50 (1+ 0.10/2)2 - 1
1103.81 (1+ 0.10/4)4 - 1
1104.71 (1+ 0.10/12)12 - 1
1105.15 (1+ 0.10/365)365 - 1
1105.17
exp (0.10) - 1
Effective
Annual Rate
10.0000%
10.2500%
10.3813%
10.4713%
10.5156%
10.5171%
Stated Annual Interest rate

EIR = 1+
-1
m
Daily Compounding is same as Continuous Compounding

13
Present Value
The process of calculating the present value of the future Cash
Flows is called discounting and the interest rate used for
discounting is called the discount rate.
14
Dr Pankaj Varshney
Present Value of a Single Cash Flow

From our understanding of Future Value, we know that
FVn = P (1+r)n
Present Value Interest Factor
hence, P=FVn * 1
[PVIF(n,r)]
(1+r)n
= FVn* PVIF (n, r)

Values of PVIF for various combinations of r and n are given in
Present Value tables.
PVIF
(5 yrs,5%)
15
What is the worth of Rs.10,000/- received at the end of 5 years from

now, if the discount rate is 6% p.a.?
10,000
0
??
Present Value of Rs. 10,000 (Future Value) would be :
10,000=P*(1.06)5
10,000
PV=
=10,000*0.74726 = Rs.7,472.60
(1.06)5
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Dr Pankaj Varshney
17
Present Value
=PV(Interest Rate, Time,,
-Future Value, 0(or1))
Discounting Rate (r)

Time Period n)
Future Value (FVn)
= 0 End of period
= 1 Start of period
Returns the Present Value

18
Dr Pankaj Varshney

1100
1000
900
Present Value
800
700
5%
600
500
400
300
18%
200
100
1
10
Years
19
Annuity
Annuity is a stream of n equal cash flows (inflows or
outflows) at regular intervals for a fixed period of time.
If each investment is made at the END of each period, the
annuity is called Regular Annuity or Annuity in arrears
0
If each investment is made at the BEGINNING of each

period, the annuity is called Annuity Due.
0
3
A
n-1
A
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Dr Pankaj Varshney
10
Future Value of Annuity

Future Value of Regular Annuity:
0
n-2
n-1
A
n
A
A(1+r)n-1
A(1+r)n-2
A(1+r)n-3
A(1+r)2
A(1+r)1
FVARA = A(1+r)n-1 + A(1+r)n-2 + A(1+r)n-3 +........+ A(1+r)2 +A(1+r)1 + A
(1+r)n -1
FVARA = A
Future Value Interest Factor Annuity

[FVIFA(n,r)]
21
Future Value of an Annuity

Future Value of Annuity Due:
0
n-2
n-1
A(1+r)n
A(1+r)n-1
A(1+r)n-2
A(1+r)2
A(1+r)1
FVA AD = A(1+r)n + A(1+r)n-1 + A(1+r)n-2 +........+ A(1+r)2 + A(1+r)1
(1+r)n -1
FVA AD = A
(1+r)
r
22
Dr Pankaj Varshney
11
Future Value of an Annuity (Annuity Regular)
23
Future Value of an Annuity (Annuity Due)
24
Dr Pankaj Varshney
12
Future Value of an Annuity
Sairam deposits Rs.50,000/- every year in a 5-year recurring deposit earning

interest @8%p.a. How much money would get accumulated in the recurring
deposit account, by the end of 5 years?
Case-1 Regular Annuity:
50,000
??
50,000 50,000 50,000 50,000
(1.08)5 -1
FVARA = 50,000
= 50,000*5.8666= Rs.2,93,330/ 0.08
Case-2 Annuity Due:
??
50,000 50,000 50,000 50,000 50,000
(1.08) -1
FVA AD = 50,000
(1.08) = 50,000*6.3359= Rs.3,16,796/0.08
25
Present Value of an Annuity

Present Value of Regular Annuity:
0
1
1
2
2
3
3
n-2
n-2
A
n-1
n-1
n
n
A/(1+r)1
A/(1+r)2
A/(1+r)3
A/(1+r)n-2
A/(1+r)n-1
A/(1+r)n
PVARA =
A
A
A
A
A
A
+
+
+.........+
+
+
1
2
3
n-2
n-1
(1+r) (1+r) (1+r)
(1+r)
(1+r)
(1+r)n
1
1
PVARA =A n
r r(1+r)
Dr Pankaj Varshney
Present Value Interest

Factor Annuity
[PVIFA (n,r)]
26
13

Present Value of Annuity Due:
1
0
A
2
1
3
2
4
3
n-1
n-2
n
n-1
A/(1+r)1
A/(1+r)2
A/(1+r)3
A/(1+r)n-2
A/(1+r)n-1
PVA AD = A+
A
A
A
A
A
+
+
+.........+
+
1
2
3
n-2
(1+r) (1+r) (1+r)
(1+r)
(1+r)n-1
1
1
PVA AD =A (1+r)
n
r r(1+r)
27
Present Value of an Annuity (Annuity Regular)
28
Dr Pankaj Varshney
14
Present Value of an Annuity (Annuity Due)
29

=PV(Interest Rate, Time,
-Annuity,,0(or1))
Discounting Rate (r)
Time Period n)
-Annuity
= 0 End of period
= 1 Start of period
Returns the Present Value of

the Annuity
30
Dr Pankaj Varshney
15

Aditya is planning to buy a Single premium pension plan which
would give him an annual pension of Rs 50,000/- for the next 30
years. What should be the maximum premium that he should pay
now for the pension plan, assuming interest @9%?
Single premium (to be paid now) = Present value of the annuities
to be received over the life of the pension plan.
1
1
=50000
30 =50000*10.2737=Rs.5,13,683/ 0.09 0.09(1.09)
31
Equated Monthly or Yearly Installments

Suppose you take a loan of Rs 2,50,000/- @8% pa to be repaid in 5
yearly equal installments. Find the amount of each installment?
1
1
1
1
PVARA =A 2,50,000 = A
n
5
r r(1+r)
0.08 0.08(1.08)
2,50,000
A=
= 62,614/3.9927
Opening
Balance
(1)
Annual
Instalment
(2)
250,000
2
3
4
5
207,386
161,363
111,658
57,976
Year
Interest
(3) = (1)*8%
Principal
Repayment
(4) = (2)-(3)
Closing
Balance
(5) = (1)-(4)
62,614
20,000
42,614
207,386
62,614
62,614
62,614
62,614
16,591
12,909
8,933
4,637
46,023
49,705
53,682
57,977
161,363
111,658
57,976
0
3,13,070
63,070
2,50,000
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Dr Pankaj Varshney
16
Installments
=PMT(Interest Rate, Time,
-Loan Amount,,Type)
Discounting Rate
Time Period
Loan Amount
= 0 End of period
= 1 Start of period
Returns the Amount of

Installment
33
Saving for College Education
Sunil wants to send his daughter to a 4-year college, 18 years

from now. Tuition fees is Rs. 50,000 per year now which is
expected to rise @ 5% pa over the next 18 years. If Sunils
saving can earn @ 8% pa, (a) how much he should invest
(lumpsum) now to meet the expenditure, or (b) how much he
should invest each year for the same.
Dr Pankaj Varshney
17
Saving for College Education
Refinancing a Housing Loan
Mudit had taken a 30-year loan for Rs. 2,00,000/-, 3 years

ago @ 9%pa. The interest rate has fallen now to 7.50%pa.
He is thinking of refinancing the loan. Cost of refinancing is
2.50% of the loan. Assuming the discount rate as 6%, should
the loan be refinanced?
Dr Pankaj Varshney
18
Refinancing Housing Loan
Refinancing Housing Loan
Dr Pankaj Varshney
19
Growing Annuity
Growing Annuity is a stream of n cash flows growing @ g, paid
at regular intervals.
Growing Regular Annuity:
0
A(1+g)
A(1+g)2
A(1+g)n-1
Growing Annuity Due:

0
A
A(1+g) A(1+g)2 A(1+g)3
n-1
A(1+g)n-1
39
Present Value of a Growing Annuity

Present Value of Growing Regular Annuity :
0
A(1+g)
A(1+g)2
n-1
A(1+g)n-2
n
A(1+g)n-1
A
(1 + r) 1
A (1 + g )1
(1 + r) 2
A (1 + g ) 2
(1 + r ) 3
A (1 + g ) n -2
(1 + r )n -1
A (1 + g )n -1
(1 + r )n
A
A(1+g) A(1+g)2
A(1+g)n-1
PVGARA =
+
+
+......+
(1+r)1 (1+r)2
(1+r)3
(1+r)n
A 1+g
PVGA RA =
1r-g 1+r
Dr Pankaj Varshney
For g r
40
20

Present Value of Growing Annuity Due:
0
1
2
3
A(1+g) A(1+g)2 A(1+g)3
n-1
A(1+g)n-1
A(1+g)
(1+r)1
A(1+g)2
(1+r)2
A(1+g)3
(1+r)3
A(1+g)n-1
(1+r)n-1
A
A(1+g)1 A(1+g)2
A(1+g)n-1
PVGA AD =
+
+
+......+
(1+r)0 (1+r)1
(1+r)2
(1+r)n-1
A 1+g
PVGA AD =
1-
r-g 1+r
(1+r) For g r
41

The annual (year-end) lease payment of a building increase by 10%
for the next 5 years. If 8% is the appropriate discount rate and first
years payment is Rs. 10,000/-, what is the maximum amount that an
investor pay to be the recipient of these lease payments?
Growing Regular Annuity:
10,000 1.10
PVGA RA =
10.08 - 0.10 1.08
= Rs.48,042/
(1.08) = Rs.51,886/
If Growing Annuity Due:
10,000 1.10
PVGA AD =
10.08 - 0.10 1..08
42
Dr Pankaj Varshney
21
Future Value of a Growing Annuity

Future Value of Growing Regular Annuity :
0
1
A
n-1
A(1+g)n-2 A(1+g)n-1
A(1+g) A(1+g)2
A
(1+r)1
A(1+g)1
(1+r)2
A(1+g)2
(1+r)3
A(1+g)n-2
(1+r)n-1
A(1+g)n-1
(1+r)n
A 1+g
=
FVGA RA = PVGA RA *(1+r)
1r-g 1+r
n
n
*(1+r)
43

Future Value of Growing Annuity Due:
0
A
n-1
A(1+g)
A(1+g)2
A(1+g)3
A(1+g)n-1
A(1+g)
(1+r)1
A(1+g)2
(1+r)2
A(1+g)3
(1+r)3
A(1+g)n-1
(1+r)n-1
FVGA AD = PVGA
AD
*(1+r)n
n
A (1+ r) 1+g
n
FV G A A D =
1-
*(1+r)
r-g 1+r
Dr Pankaj Varshney
44
22
Mr. Sairam is 35 years old now and wants to save each year until he
is 65. If he saves Rs 10,000/- every year and the savings grow@ 5%
pa (after the first year),how much will he have saved by age 65 if
the interest rate is 10% pa?
35
0
36
1
10,000
37
2
10,000(1.05)
38
3
10,000(1.05)2
Step-1 : Calculate PVGA:
10,000 1.05
PVGA =
10.10 - 0.05 1.10
30
65
30
10,000(1.05)29
= Rs. 1,50,464/
Step-2 : Calculate FVGA using PVGA:
FVGA = PVGA*(1+r)n = 1,50,464*(1.10)30 = Rs. 2.625 Mn

45
Perpetuity
Perpetuity is a stream of equal cash flows at regular
intervals which lasts forever.
0
Present Value of a Perpetuity:
PVP=
A
A
A
+
+
+......
1
2
(1+r) (1+r) (1+r)3
PVP=
A
r
46
Dr Pankaj Varshney
23
Perpetuity
You want to endow an annual MBA graduation party at your alma
amter. The event would cost Rs.50,000/- each year forever. If the
business school earns @ 8%p.a. on its investments and the first
party is in one years time, how much will you need to donate to
endow the party?
PVGP=
50,000 50,000 50,000

+
+
+......
(1.08)1 (1.08)2 (1.08)3
PVGP=
50,000
=Rs.6,25,000/0.08
47
Growing Perpetuity
Growing Perpetuity is a stream of cash flows at regular

intervals and grows at a constant rate forever.
0
1
A
2
A(1+g)
A(1+g)2
A(1+g)3
Present Value of a Growing Perpetuity:
A
A(1+g) A(1+g)2 A(1+g)3
PVGP=
+
+
+
......
(1+r)1 (1+r)2
(1+r)3
(1+r)4
PVGP=
A
r-g
48
Dr Pankaj Varshney
24
Growing Perpetuity
But then you are informed that the cost of the party would increase
by 4% per year, (after the first year).How much will you now need
to donate to endow the party?
50,000 50,000(1.04) 50,000(1.04)2

PV=
+
+
+......
(1.08)1
(1.08)2
(1.08)3
PV=
50,000
=Rs.12,50,000/0.08 - 0.04
You need to double the amount of your gift !!!
49
Summary
Annuity
(Regular Annuity)
Present Value
1
C
(1+r)n
1 1
A n
r r(1+r)
Annuity
(Annuity Due)
1 1
A (1+r)
n
r r(1+r)
Single Cash Flow
Growing Annuity
(Regular Annuity)
Growing Annuity
(Annuity Due)
Perpetuity
Growing Perpetuity
Dr Pankaj Varshney
n
A 1+g
1
r-g 1+r
n
A 1+g
1-
(1+r)
r-g 1+r
A
r
A
r-g
Future Value
C(1+r)n
(1+r)n -1
A
(1+r)n -1
A
(1+r)
r
A 1+g
1r-g 1+r
(1+r)n
n
A(1+r) 1+g
1 (1+r)n
r-g 1+r
n
50
25
Where to Invest ?
Atul want to invest Rs. 10 Lac for a period of 10 years. He can invest in
Government bonds which mature in 6 years and earn interest @ 8%
pa. The expected fixed deposit rate for 6 years hence, given by a local
bank is 3.5% pa, with half yearly compounding. Meanwhile, Yep Bank
has offered an investment proposal offering 6.5% pa with quarterly
compounding for 10 years. Which proposal is better for Atul?
Option 1: Invest in Government Bonds @ 8% pa for 6 years & @ 3.5%
pa (half yearly compounding) in bank fixed deposit for next 4 years
thereafter.
10,00,000 * (1.08)6 = Rs. 15,86,874.32

15,86,874.32 * (1.0175)8 = Rs. 15,86,874.32 *1.14888 = Rs. 18,23,131/-
Option 2: Invest in Yep Bank 10-year Fixed deposit @ 6.5% pa

(quarterly compounding) for 10 years.
10,00,000 * (1.01625)40 = 10,00,000* 1.90556 = Rs. 19,05,560/Better to deposit with Yep Bank.
51
The MBA Decision
52
Dr Pankaj Varshney
26
Valuation of Securities
Valuing a Zero-coupon Bond

Consider a Zero-coupon Bond with face value of Rs. 5,000/- payable
at the end of 3 years. What should be the price of the bond today,
if the required rate of return is 5%?
5,000
0
??
Value of ZCB =
V0 =
Fn
(1+r)n
5,000
= Rs.4,319.19
(1.05)3
54
Dr Pankaj Varshney
27
Valuing a Coupon Bond

NTPC issues 14% bonds of Rs.10,000/- face value, redeemable after 5
years. Assuming the required rate of return is 10%, what should be
the price of the bond today?
0
A+F
A/(1+r)1
A/(1+r)2
A/(1+r)3
A/(1+r)4
A+F/(1+r)5
n
Value of Coupon Bond =

t=1
Coupon Interest Face Value of Bond

+
(1+r)t
(1+r)n
A
A
A
A
F
V0 =
+
+
+.....+
+ n n
1
2
3
n
(1+r) (1+r) (1+r)
(1+r) (1+r)
55
Valuing a Coupon Bond
Face Value = Rs.10,000 ; Coupon rate = 14% pa;

Tenure = 5 Years; Required rate of return = 10%;
Value of Bond= ??
5
At
F
+
t
(1+r)5
t=1 (1+r)
V0 =
5
=
t=1
1,400 10,000
+
(1.10)t (1.10)5
=1,400*PVIFA(5yrs, 10%) + 10,000*PVIF(5 yrs, 10%)

=1,400*3.79079 + 10,000*0.62092
= 5,307.10 + 6,209.21 = Rs.11,516.31
56
Dr Pankaj Varshney
28
Valuing Equity : Dividend Discount Model (DDM)

Value of an equity share is the present value of the stream of
expected future dividends discounted at an appropriate discount
rate.
Value of a stock = PV(expected future dividends)
Value =
D1
D
D
D
+ 2 + 3 +..........+
(1+r)1 (1+r)2 (1+r)3
(1+r)
Dt
t
t=1 (1+r)
Value =
General Form of DDM
57
DDM
ABC Co. is expected to pay a dividend of Rs.3/- forever.

What should be the Value of the equity share, if an
investor has a required rate of return as 13%?
Value =
D1 3.00
=
= Rs.23/r 0.13
58
Dr Pankaj Varshney
29
DDM - Constant Growth

If the dividends are expected to grow at a constant rate g,
and r > g, then,
D1
D1 (1+g)1 D1 (1+g)2 D1 (1+g)3
V0 =
+
+
+
+..........+
(1+r)1
(1+r)2
(1+r)3
(1+r)4
V0 =
D1
(r - g)
Assumptions:
D1 > 0
Dividends grow at a constant growth rate g =ROE*b
Dividend Payout ratio (1-b) is constant
59
DDM - Constant Growth
ABC Co. is expected to pay a dividend of Rs.3/- which is

expected to grow @ 7% forever. What should be the Value
of the equity share, if an investor has a required rate of
return as 13%?
Value =
D1
3.00
=
= Rs.50/(r - g) (0.13 - 0.07)
60
Dr Pankaj Varshney
30
DDM - Multiple Growth Rate

A firm may pass through different growth phases and hence
dividends may also grow at different rates.
D1
D1 (1+g 1 )1 D 2 (1+g 2 ) D 2 (1+g 2 )2
V0 =
+
+
+
+..........+
(1+r)1
(1+r)2
(1+r)3
(1+r)4
n
Dt-1 (1+g t ) Vn
Dn+1
+
where
V
=
n
(1+r)t
(1+r)n
r - gn
t=1
V0 =
D (1+g ) 1 Dn+1
V0= t-1 t t +
(1+r)n r - gn
t=1 (1+r)
n
61
DDM - Multiple Growth Rate -Illustration

D0 = 3.50; g1-3=15% g 4-6=12% g7+=8% ; r = 12% ; Value = ??
D1 = 4.03; D2 = 4.63; D3 = 5.32; D4 = 5.96; D5 = 6.68; D6 = 7.48; D7 = 8.08
4.03 4.63 5.32 5.96 6.68 7.48

8.08
1
V0 =
+
+
+
+
+
+
1
2
3
4
5
6
6
(1.12) (1.12) (1.12) (1.12) (1.12) (1.12) (0.12 - 0.08) (1.12)
P0 = 124.78 Rs. 125/-
62
Dr Pankaj Varshney
31
Value of a Business
Indicoffee, a popular coffee shop located in a busy shopping mall, is
expected to generate net cash flows of Rs 3 Lacs a year. If the
cash flows increase @ 2.5% pa for the next 50 years, what is the
worth of the coffee shop? (assume discount rate of 15%)
Case-1 Growing Regular Annuity:
3,00,000 1.025
PVGA RA =
10.15 - 0.025 1.15
50
= Rs.23,92,380/
Case-2 Growing Annuity Due:
3,00,000 1.025
PVGA RA =
10.15 - 0.025 1.15
50
(1.15) = Rs.27,51,245/
63
Dr Pankaj Varshney
32

TVM Concepts Explained

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LBSIM-PGDM(General) Batch 2014-16

Time Value of Money

Time Value of Money

Thus, the cash flows occurring in different time periods

LBSIM-PGDM(General) Batch 2014-16

Cash Flows at-the-beginning of period

Time Value of Money

Bring future cash flows to todays value: Present Value

LBSIM-PGDM(General) Batch 2014-16

Future Value of amount P , after n years would be:

Future Value Interest Factor

LBSIM-PGDM(General) Batch 2014-16

Future Value (Contd.)

Future Value of Rs. 80,000/- @14% after 5 years would

Future Value (Contd.)

LBSIM-PGDM(General) Batch 2014-16

Returns the Future Value

Higher the interest rate, faster the savings grow

LBSIM-PGDM(General) Batch 2014-16

Compounding more than once a year

If you invest Rs.80,000/- @ 14%p.a., how much would it amount to

Compounding more than once a year

Future Value on continuous compounding basis is:

LBSIM-PGDM(General) Batch 2014-16

Nominal vs. Effective Interest Rate

Stated Annual Interest rate

Daily Compounding is same as Continuous Compounding

LBSIM-PGDM(General) Batch 2014-16

Present Value of a Single Cash Flow

= FVn* PVIF (n, r)

Present Value of a Single Cash Flow

What is the worth of Rs.10,000/- received at the end of 5 years from

Present Value of Rs. 10,000 (Future Value) would be :

LBSIM-PGDM(General) Batch 2014-16

Present Value of a Single Cash Flow

Discounting Rate (r)

Returns the Present Value

LBSIM-PGDM(General) Batch 2014-16

Present Value of a Single Cash Flow

If each investment is made at the BEGINNING of each

LBSIM-PGDM(General) Batch 2014-16

Future Value of Annuity

FVARA = A(1+r)n-1 + A(1+r)n-2 + A(1+r)n-3 +........+ A(1+r)2 +A(1+r)1 + A

Future Value Interest Factor Annuity

Future Value of an Annuity

FVA AD = A(1+r)n + A(1+r)n-1 + A(1+r)n-2 +........+ A(1+r)2 + A(1+r)1

LBSIM-PGDM(General) Batch 2014-16

Future Value of an Annuity (Annuity Regular)

Future Value of an Annuity (Annuity Due)

LBSIM-PGDM(General) Batch 2014-16

Future Value of an Annuity

Sairam deposits Rs.50,000/- every year in a 5-year recurring deposit earning

50,000 50,000 50,000 50,000

50,000 50,000 50,000 50,000 50,000

Present Value of an Annuity

Present Value Interest

LBSIM-PGDM(General) Batch 2014-16

Present Value of an Annuity

Present Value of an Annuity (Annuity Regular)

LBSIM-PGDM(General) Batch 2014-16

Present Value of an Annuity (Annuity Due)

Present Value of an Annuity

FVGA = PVGA(1+r)n = 1,50,464(1.10)30 = Rs. 2.625 Mn

=1,400PVIFA(5yrs, 10%) + 10,000PVIF(5 yrs, 10%)