Õ
 

m
 


m
 



 It recognizes that the value of money is

different for different periods of time.
 In simple terms, difference in value of money
today and tomorrow is referred as the time
value of money.
? 


 ¦resence of inflation
 ¦reference of individuals for current
consumption over future consumption.
 Investment opportunities.
p
  


 he future value of money that is available today

is calculated through compounding.
 he amount so obtained is called as F
VAÕ IN   FA
 
FVIF)
 F=¦
r)n
 he present value of money accruing later is
calculated through discounting.
 he amount so obtained is called as ¦  N
VAÕ IN   FA
 
¦VIF)
 ¦=F/
r)n
 uppose you have s  today and need
to preserve it for the next 8 years, which is
estimated to be s 4,.
 At what rate should you invest so as to have
the required sum at the end of 8 years?

Ans:  .86%)
 If you need s 4 after 8 years at %
what should you invest today?

Ans: 6, 6)


 m

 Annuity is a stream of constant cash flow

payment or receipt) occurring at regular
intervals of time.
 When the annuity occurs at the end of each
period it is called Ú
 or




 When it occurs at the beginning of each
period it is referred to as §
 
 uppose you deposit s / annually in a
bank for years at a compounded rate of
interest of %. What will be the value after
years?
 s 
.)4 
.)3  
.)

.) 
 =s 6 /
 Future value of Annuity =

A[
r)n/r
uppose you have decided to invest s
3, per year in a ¦¦F account for
3 years. What will be the amount at
the end of 3 years if the ate of
interest is %?
 s 3,
FVIFA %,3 yrs)
 = s 3o,
.) 3  
.

= s 3, [.
=s ,,6
¦? 
m 


 m

¦VIFA = A [{
/r)n}/r

uppose you expect to receive s. 

annually for 3 years, each receipt occurring at
the end of the year. What is the present value
of this stream of benefits if the discount rate
is %?

Ans: 486.8/

m¦? 
m
¦

 he net present value of a project is the sum

of the present values of all the cash flows
positive as well as negativethat are expected
to occur over the life of the project.

n
= υ
t  Initial Investment
t=
r)t
Where
is
the cash flow at the end of the year t, n is the life
t
span of the project and r is the discount rate.
|ear
ash flow
 ,,
 ,ooo
 ,
3 3,ooo
4 3,
3 ,

m?
?m ?m?


 he I of a project is the discount rate at

which N¦V is Z  .
 It is the discount rate which equates the
present value of future cash flows with the
initial investment.
n
Initial Investment =υ
t
t=
r)t
| A
AFÕ W

, , )
 3,
 3,
3 4,
4 4 ,

alculate at r =  % Ans: 8

alculate at r = 6% Ans: 8,64
 N¦V / % = 8
 N¦V /6% = 3 
 8  3  = 6
 8/6 = .3
 Add to lower rate Ans:  .3%