# Present Value And Future Value Formulas Pdf

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With Compound Interest we work out the interest for the first period, add it to the total, and then calculate the interest for the next period, and so on But it is easier to write down a series of multiplies using Exponents or Powers like this:.

Three approaches exist to calculate the present or future value of an annuity amount, known as a time-value-of-money calculation. You can use a formula and either a regular or financial calculator to figure out the present value of an ordinary annuity. Additionally, you can use a spreadsheet application such as Excel and its built-in financial formulas.

## Compound Interest Formula Derivations

Understanding annuities is crucial for understanding loans, and investments that require or yield periodic payments. An annuity is a series of equal payments in equal time periods. Usually, the time period is 1 year, which is why it is called an annuity, but the time period can be shorter, or even longer. These equal payments are called the periodic rent. The amount of the annuity is the sum of all payments.

The future value FV function calculates the future value of an investment assuming periodic, constant payments with a constant interest rate. Units for rate and nper must be consistent. If pmt is for cash out i. For example, you can use PPMT to get the principal amount of a payment for the first period, the last period, or any period in between. The Excel IPMT function can be used to calculate the interest portion of a given loan payment in a given payment period. For example, you can use IPMT to get the interest amount of a payment for the first period, the last period, or any period in

## 4.2: Present and Future Value

Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation. Quantitative Methods 1 Reading 6. The Time Value of Money Subject 3. Seeing is believing! Find out more. Subject 3. This is known as compounding.

Quantitative Methods 1 Reading 6. The Time Value of Money Subject 3. Why should I choose AnalystNotes? AnalystNotes specializes in helping candidates pass. Find out more. Subject 3.

This is a rational decision because you could spend the money now and get the satisfaction from your purchase now rather than waiting a year. Even if you decided to save the money, you would rather receive it today because you could deposit the money in a bank and earn interest on it over the coming year. So there is a time value to money. Which would you take? The time value of money is the value at which you are indifferent to receiving the money today or one year from today. When discussing the time value of money, it is important to understand the concept of a time line.

## The Future Value and Present Value of an Annuity

Another reason that a dollar today is worth more than a dollar tomorrow is that, in modern economies based on fiat money, prices tend to rise every year. We will discuss the impact of inflation on interest rates more at the end of this chapter. For now, we consider only nominal interest rates , not the real interest rate. The compounding period need not be a year, and it is even possible to compound interest continuously, but unless otherwise noted we will compound annually in this chapter. The quick way to calculate this for any year is to use the following formula:.

Three approaches exist to calculate the present or future value of an annuity amount, known as a time-value-of-money calculation. You can use a formula and either a regular or financial calculator to figure out the present value of an ordinary annuity. Additionally, you can use a spreadsheet application such as Excel and its built-in financial formulas. In the general sense, an annuity means a series of payments, either made by you or coming to you.

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#### Make A Formula

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