Financial Management: Research Paper
A. Compound Interest Formula:FV = P (1 + r) nFuture Value = FV, P = Principal, r = interest rate and n = number of years.
= $500(1 + 0.06) 10a) An initial $500 compounded for 10 years at 6 percent.
A = $ 895b) An initial $500 compounded for 10 years at 12 percent.
500(1 + 0.12) 10B = $1553Present Value Calculation:PV = present Value, Principal = $ 500, r = interest rate and n = number of yearsFormula:PV = FV/(1 + r) nThe present value of $500 due in 10 years at a 6 percent discount rate.
PV = $ 500 / (1 + 0.06) 10c) The present value of $500 due in 10 years at a 6 percent discount rate.
C = $ 279.20d) The present value of $1,552.90 due in 10 years at a 12 percent discount rate and at a 6 percent rate.
At 6 % = $ 867.13At 12 % = $ 499.99Definition of Present valueThe free dictionary defines Present Value as, The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 6%, the present value of $500 to be received in ten year is $ 500 /(1 + 0.06) 10 = $ 279.20 For $ 1552.90 due in 10 years at a 12 percent discount rate and at a 6 percent rate. The present value is $ 867.13 % and $ 499.99 respectively.
B Future Value of an Annuity:The Future Value of an Ordinary Annuity (FVoa) is the value that a stream of expected or promised future payments will grow to after a given number of periods at a specific compounded interest.
Formula:FVoa = PMT [((1 + i)n - 1) / i]FVoa = Future Value of an Ordinary AnnuityPMT = Amount of each paymenti = Interest Rate Per Periodn = Number of Periods2. Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1;that is, they are ordinary annuities (Also note that you can leave values in the TVM register, switch to 'BEG ', press, and find the FV of the annuity
= $500(1 + 0.06) 10a) An initial $500 compounded for 10 years at 6 percent.
A = $ 895b) An initial $500 compounded for 10 years at 12 percent.
500(1 + 0.12) 10B = $1553Present Value Calculation:PV = present Value, Principal = $ 500, r = interest rate and n = number of yearsFormula:PV = FV/(1 + r) nThe present value of $500 due in 10 years at a 6 percent discount rate.
PV = $ 500 / (1 + 0.06) 10c) The present value of $500 due in 10 years at a 6 percent discount rate.
C = $ 279.20d) The present value of $1,552.90 due in 10 years at a 12 percent discount rate and at a 6 percent rate.
At 6 % = $ 867.13At 12 % = $ 499.99Definition of Present valueThe free dictionary defines Present Value as, The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 6%, the present value of $500 to be received in ten year is $ 500 /(1 + 0.06) 10 = $ 279.20 For $ 1552.90 due in 10 years at a 12 percent discount rate and at a 6 percent rate. The present value is $ 867.13 % and $ 499.99 respectively.
B Future Value of an Annuity:The Future Value of an Ordinary Annuity (FVoa) is the value that a stream of expected or promised future payments will grow to after a given number of periods at a specific compounded interest.
Formula:FVoa = PMT [((1 + i)n - 1) / i]FVoa = Future Value of an Ordinary AnnuityPMT = Amount of each paymenti = Interest Rate Per Periodn = Number of Periods2. Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1;that is, they are ordinary annuities (Also note that you can leave values in the TVM register, switch to 'BEG ', press, and find the FV of the annuity
References: Basic Financial Calculator; Available http://www.dinkytown.net/java/FinCalc2.htmlCompound Interests, Future Value; Available; http://www.moneychimp.com/articles/finworks/fmfutval.htmFuture Value of an Ordinary Annuity Available; http://www.getobjects.com/Components/Finance/TVM/fva.htmlThe free dictionary; Definition of Present value; Available http://financial-dictionary.thefreedictionary.com/Present%20value