The time value of money Flashcards
The future value of £3000, invested at a rate of 5% over 10 years would be?
The future value of £10,000 invested at a rate of 7% over 9 years would be:
The future value of £7000, invested at a rate of 4% over 15 years, with interest paid at the start of the year would be?
PV for a future value of £10,000 a term of 5
years and an interest rate of 3%?
if someone invests £5000 over a 15-year term and the future value at the end of the term is £19,232, the formula would be
(Look at picture first)
Now on a scientific calculator, you will usually find a button labeled x√y which allows you to work out any root, but if not
you can cheat by working it out as (3.8464)
In this example where we get to is:
1.0940 = 1+ r or r = 0.0940 or 9.4%
if we have an initial investment of
£10,000, invested at a rate of 3% for 5 years and then 7% for a further 5 years, we would get:
To get to the answer, simply work it through in order 10,000 x 1.1593 = £11,593. This multiplied by 1.4026 is £16,260. Once
again, the long hand is not difficult either… in the above
example it would be 10,000 x 1.03 x 1.03 x 1.03 x 1.03 x 1.03
x 1.07 x 1.07 x 1.07 x 1.07 x 1.07. Here we have simply rolled
forward our £10,000 by 1.03 for 5 years and then what is left
has been rolled forward by 1.07 for 5 years. This is a common
question in the exam with perhaps one period of three years
and one of four years
A rate of 5%, paid quarterly for one year would be:
calculate a payment of £200 per annum, a
term of 20 years and a rate of return of 5%.
FV = 200 (1.653/0.05) or 200(33.06) or £6612
To provide an income of £1000 per annum over a term of 15 years at a rate of interest of 4%, you would need:
A = 1000 (0.445/0.04) or 1000(11.125) or £11,125
the real rate of return given a nominal rate of return of 5% and an inflation rate or 2% is:
(1.05) / (1.02) -1
Rreal = 1.0294 – 1 or 2.94%
