Simple Interest for a sum of Rs.10,000 at 8.5% p.a for 2 yrs Calculation of Ee nnuities Ten t=1000(85/100'2=Re 170000 So, A= 10000 + 1700 = Rs. 11700.00 » Simple Interest I=Prrrt A=P+I So, A=P(I+rt) If tis 2yr 6 months, then, t= 2% yrs =5/2 yrs. So, S.1= Rs.2125.00 Lets take the first eg,, but with quarterly compounding interest, A = : Sey at Then A = 10000 * [1 + (8.5/4)/100}*? = 10000 * (1.02125)° ae = 11831.956 = Rs.11832 (rounded off) When t becomes infinity, A = P* e™ iy So, C.1 = 11832 - 10000 = Rs, 1832.0 where ‘e’ = 2.71828 Tens Rs. 1882.00 > Compound Interest » The Rule of 72 » Ithelps to find out the no. of years before the money doubles whether in investment or debt. > This done just by dividing, the number 72 by ¢ » For og, Rs.500 04% interest gets doubled in 18 yrs (72/4=1 EMI for a Joan of Rs. 1,00,000 with interest rate @ 15% for a period of 2 yrs, P = 100000, r = 15% /12 = 1.25% = 0.0125, n = 2yrs = 24 months » EMI=P*r* (141) > Equated Monthly Installments (EMIS “ : . ene-1 » EMI = P*r? (142)" (9-1 : - 7 » P= Principal, r= rate of interest per installment period” 5 EMI-= 100000" 0.0125*_(1+0.0125)" » If interest is 12%p.a., r = 12% /12 monthly installments = 1' Cee per installment = 0.01 = 4848.665 = 4849.00 (rounded off) » n= total no. of installments in the tenure Fixed & Floating Interest Rates Present & Future values of Annuities: » Fixed Rates: The rate of interest is fixed. » Floating Rates: The rate of interest changes. » Present Value of Ordinary Annuity, A= C*(1+n)"-1 > is also known as Variable rates. (e > The fixed rates, normally, higher than floating rate. Future Value of Ordinary Annuity, A=C* (Le)e—1 Annuities » For a payment of Rs.1000 every year for next 5 yrs and the > Ikisa series of fixed payments at a specified frequency. investment at 5%: > Ordinary Annuity: Payments required at the end of each > Present Value of A= 1000" (1+.05)5-1 = 4320.48 period. For eg., Water Bill Electricity Bill etc. 105 * (14.05) » Annuity Due: Payments required at the start of each perio » Future Value of A = 1000 * (1+.05)> - 1 = 5525.63 For og,, Rent/Fees etc. od » Present Value of Annuity Due, A= (I+1)*C* (142)*=1 Methods to pay-off the debt a ‘Amertisation » A simple method of repaying interest-bearing loans. » Series of periodic equal payments are made. Each payment pays the interest on unpaid balance and a part of the outstanding principal. Future Value of Annuity Due, A = (1+1) *C* (1#1)"=1 Take the previous example of Rs.1000 every year for next 5y:" and the investment at 5%: Present Value of A = (1+.05) * 1000 * (14.05)5 -1 = 4545.95 05 * (1+.05)> Future Value of A = (14.05) * 1000 * (14.05) 05 Sinking Funds Funds (planned for a future purpose) that accumulated ystematically by means of equal periodic deposits. » Schedule showing how a sinking fund accumulates to the desired amount is known as Sinking, fund schedule. = 5801.91