Beruflich Dokumente
Kultur Dokumente
n=number of periods
Compound interest
Compounding can substantially affect the rate of
return. A 9% annual interest compounded daily
provides a 9.42% yield.
How compounding affects Effective Yield for a $10,000 investment.
Single Sum
Future value
FV = PV * FVF (Future Value Factor)
Use table 6-1
Present value
PV = FV * PVF (Present Value Factor)
Use table 6-2
Table 6-1
Number
of
Periods
2%
1
2
3
4
5
1.02000
1.04040
1.06121
1.08243
1.10408
Discount Rate
4%
6%
8%
1.04000
1.08160
1.12486
1.16986
1.21665
1.06000
1.12360
1.19102
1.26248
1.33823
1.08000
1.16640
1.25971
1.36049
1.46933
10%
1.10000
1.21000
1.33100
1.46410
1.61051
Table 6-1
Number
of
Periods
2%
1
2
3
4
5
1.02000
1.04040
1.06121
1.08243
1.10408
$10,000
Present Value
Discount Rate
4%
6%
8%
1.04000
1.08160
1.12486
1.16986
1.21665
1.06000
1.12360
1.19102
1.26248
1.33823
1.25971
Factor
1.08000
1.16640
1.25971
1.36049
1.46933
10%
1.10000
1.21000
1.33100
1.46410
1.61051
$12,597
Future Value
8
Table 6-1
Number
of
Periods
2%
1
2
3
4
5
6
1.02000
1.04040
1.06121
1.08243
1.10408
1.12616
Discount Rate
4%
6%
8%
1.04000
1.08160
1.12486
1.16986
1.21665
1.26532
1.06000
1.12360
1.19102
1.26248
1.33823
1.41852
1.08000
1.16640
1.25971
1.36049
1.46933
1.58687
10%
1.10000
1.21000
1.33100
1.46410
1.61051
1.77156
6 compounding periods
4% interest per period
10
Table 6-1
Number
of
Periods
2%
1
2
3
4
5
6
1.02000
1.04040
1.06121
1.08243
1.10408
1.12616
$10,000
Present Value
Discount Rate
4%
6%
8%
1.04000
1.08160
1.12486
1.16986
1.21665
1.26532
1.06000
1.12360
1.19102
1.26248
1.33823
1.41852
1.26532
Factor
1.08000
1.16640
1.25971
1.36049
1.46933
1.58687
10%
1.10000
1.21000
1.33100
1.46410
1.61051
1.77156
$12,653
Future Value
11
12
Table 6-2
Number
of
Periods
4%
.92456
.89000
.85734
.82645
.79719
.85480
.79209
.73503
.68301
.63552
.79031
.70496
.63017
.56447
.50663
.73069
.62741
.54027
.46651
.40388
Discount Rate
6%
8%
10%
12%
Table 6-2
Number
of
Periods
4%
.92456
.89000
.85734
.82645
.79719
.85480
.79209
.73503
.68301
.63552
.79031
.70496
.63017
.56447
.50663
.73069
.62741
.54027
.46651
.40388
$20,000
Future Value
Discount Rate
6%
8%
10%
.63552
Factor
12%
$12,710
Present Value
14
15
Table 6-2
Number
of
Periods
3%
0.88849
0.85480
0.79209
0.70843
0.63552
0.78941
0.73069
0.62741
0.50187
0.40388
12
0.70138
0.62460
0.49697
0.35554
0.25668
16
0.62317
0.53391
0.39365
0.25187
0.16312
Discount Rate
4%
6%
9%
12%
Table 6-2
Number
of
Periods
3%
0.88849
0.85480
0.79209
0.70843
0.63552
0.78941
0.73069
0.62741
0.50187
0.40388
12
0.70138
0.62460
0.49697
0.35554
0.25668
16
0.62317
0.53391
0.39365
0.25187
0.16312
$20,000
Future Value
Discount Rate
4%
6%
9%
.62317
Factor
12%
$12,463
Present Value
17
X = PV factor * 20,000
Use table 2
X = 0.63552*20,000=12,710.4
20,000 = FV factor * x
Use table 1
X = 20,000/1.57352=12,710.4
19
What
Periodic payments or receipts of the same
amount
The same-length interval in between
Compounding of interest once each interval
Find n, i and r.
Two types
Ordinary annuity
Annuity Due
table 6-3
table 6-4
PV = R PVF (due)
table 6-5
21
22
An ordinary annuity
Future Value
$2,000
2,000
2,000
2,000
2,000
2,000
10
11
12
23
Ordinary annuity
Future value
Table 6-3
25
An ordinary annuity
Present Value
$2,000
2,000
2,000
2,000
2,000
2,000
10
11
12
26
Ordinary annuity
Present value
Table 6-4
2,000
2,000
2,000
Future
Value
2,000
2,000
2,000
2,000
10
11
12
28
29
$2,000
2,000
2,000
2,000
2,000
10
11
12
30
Annuity due
Future value
Table 6-3
32
Present Value
2,000
$2,000
2,000
2,000
2,000
2,000
10
11
12
33
Annuity due
Present value
Table 6-5
Present Value
$100,000
100,000
100,000
100,000
100,000
100,000
.....
0
19
20
Table 6-4
Number
of
Periods
4%
6%
1
5
10
15
20
0.96154
4.45183
8.11090
11.11839
13.59033
0.94340
4.21236
7.36009
9.71225
11.46992
Discount Rate
8%
0.92593
3.99271
6.71008
8.55948
9.81815
10%
0.90900
3.79079
6.14457
7.60608
8.51356
12%
0.89286
3.60478
5.65022
6.81086
7.46944
Table 6-4
Number
of
Periods
4%
6%
1
5
10
15
20
0.96154
4.45183
8.11090
11.11839
13.59033
0.94340
4.21236
7.36009
9.71225
11.46992
$100,000
Receipt
Discount Rate
8%
0.92593
3.99271
6.71008
8.55948
9.81815
9.81815
Factor
10%
0.90900
3.79079
6.14457
7.60608
8.51356
12%
0.89286
3.60478
5.65022
6.81086
7.46944
$981,815
Present Value
37
Present Value
$100,000 100,000
100,000
100,000
100,000
100,000
.....
0
19
20
Table 6-5
Number
of
Periods
4%
6%
1
5
10
15
20
1.00000
4.62990
8.43533
11.56312
14.13394
1.00000
4.46511
7.80169
10.29498
12.15812
Discount Rate
8%
1.00000
4.31213
7.24689
9.24424
10.60360
10%
1.00000
4.16986
6.75902
8.36669
9.36492
12%
1.00000
4.03735
6.32825
7.62817
8.36578
Table 6-5
Number
of
Periods
4%
6%
1
5
10
15
20
1.00000
4.62990
8.43533
11.56312
14.13394
1.00000
4.46511
7.80169
10.29498
12.15812
$100,000
Receipt
Discount Rate
8%
1.00000
4.31213
7.24689
9.24424
10.60360
10.60360
Factor
10%
1.00000
4.16986
6.75902
8.36669
9.36492
12%
1.00000
4.03735
6.32825
7.62817
8.36578
$1,060,360
Present Value
40
E6-12
E6-14
41