Menu

Time Value of Money

Formulas & Examples
Future Value
Present Value
Real Quiz 1

Copyright (c) 2005 Ian H Giddy

Page 1

Future Value
Future Value
1. Single cash flow

FV=PV*(1+R)^n

Example

PV
Rate
Years

Answer

FV

2. Multiple cash flows

FV=sum(PV*(1+R)^n)

Example

PV
Rate
Years

1
300
8.00%
4

2
400
8.00%
3

3
700
8.00%
2

4
500
8.00%
1

Answer

FV

408.15

503.88

816.48

540.00

3. Annuity

FV=PMT*((1+R)^n-1)/r

Example

PMT
Rate
Years

Answer

FV

4. Annuity due

FV=PMT*((1+R)^n-1)/r)*(1+R)

Example

PMT
Rate
Years
FV

or
5000
13.65%
18

PV
Rate
Frequency
Years

50028.78

FV

200
8.00%
5
1173.32

200
8.00%
5
1267.19

Page 2

FV=PV*(1+R/m)^(n*m)
1000
8.00%
2
5
1480.244

SUM
2268.51

Present Value
Present Value
1. Single cash flow

PV=FV/(1+R/m)^(n*m)

Example

FV
Rate
Years

1000
8.00%
5

FV
Rate
Frequency
Years

600
4.50%
4
3

Answer

PV

680.58

PV

524.62

2. Multiple cash flows

PV=sum(FV/(1+R)^n)

Example

FV
Rate
Periods

800
12.00%
1

0
12.00%
2

450
12.00%
3

650
12.00%
4

Answer

PV
SUM

714.29
1447.67

0.00

320.30

413.09

3. Annuity

PV=PMT*(1-1/(1+R)^n)/R

Example

PMT
Rate
Periods

1000
8.75%
6

Answer

PV

4519.6

4. Annuity due

PV=PMT*(1-1/(1+R)^n)/R*(1+R)

Example

PMT
Rate
Periods

139
8.75%
6

PV

683.2

5. Perpetuity

PV=PMT*(1/r)

Example

PMT
Rate
Years

Answer

PV

6. Growing Perpetuity

PV=PMT*(1+g)/(r-g)

Example

PMT
Growth rate
Rate

1500
12.00%
NA
12500

1500
5.00%
12.00%

Page 3

or

PV=FV/(1+R/m)^(n*m)

Present Value
Answer

PV

22500

Page 4

Examples
Some examples
Future Value (multiple cash flows)
FV=sum(PV*(1+R)^n)
1
2
PV
900
800
Rate
8.00%
8.00%
Years
3
2

3
700
8.00%
1

4
600
8.00%
0

FV

756.00

600.00

1133.74

933.12

Present Value (multiple cash flows)

PV=sum(FV/(1+R)^n)
FV
Rate
Periods
PV
SUM

900
7.50%
1

800
7.50%
2

700
7.50%
3

600
7.50%
4

837.21
2542.23

692.27

563.47

449.28

Bond price (PV annuity + PV principal)

PV=PMT*(1-1/(1+R)^n)/R
PV=FV/(1+R)^n
PMT
Rate (semi)
Periods
PV
Price

6
7.15%
20
62.9
$88.00

Yield

14.29%

FV
Rate
Periods
PV

100
7.15%
20
25.15

PV annuity
PV=PMT*(1-1/(1+R)^n)/R
PMT
Rate
Periods
PV

1500
12.00%
12

1500
12.00%
35

9292

12263

1500
1500
12.00%
12.00%
60 Forever
12486

Future Value (find the rate)

FV=PV*(1+R)^n
PV
Rate
Years

5000
13.65%
18

Page 5

12500

SUM
3422.86

Examples

FV

50029

Loan payments (annuity payments)

PMT=PV/(1-1/(1+R)^n)/R
PV
Rate
Periods

7000
8.75%
6

PMT

1549

Lease vs borrow
1. Single cash flow

PV=FV/(1+R/m)^(n*m)
Cost

28660

Answer

FV
Rate
Frequency
Years

11000
12.00%
1
3

PV

7829.58

2. Annuity

PV=PMT*(1-1/(1+R)^n)/R

PV=PMT*(1-1/(1+R)^n)/R

Example

PMT
Rate
Periods

PMT
Rate
Periods

642
1.00% monthly
36

Answer

PV

PV

19329

642
0.949% monthly
36
19501

Savings

Price of Acquisition
Savings
Growth
Rate

21
6%
11.50%

PV Savings
Market value

382 This is max premium

370

Total max price

752

Page 6

Examples

Page 7

Examples

Page 8

Examples

Page 9

Examples

Buy
28660
20830

Lease
2000
21329
Difference
499

Page 10

Examples

Page 11

Examples

Page 12