TIME VALUE OF MONEY

Question 1

PRESENT VALUE

(PV)

Answer 1

PRESENT VALUE OF FUTURE SUM OF $

Question 2

PV - FORMULA

Answer 2

=PV(PERIODIC RATE, TOTAL PERIODS, PMT, FV,0)

Question 3

FUTURE VALUE

(FV)

Answer 3

SHOWS THE FUTURE VALUE OF CURRENT SUM OF $

Question 4

FV - FORMULA

Answer 4

=FV(PERIODIC RATE, TOTAL PERIODS, PMT, PV, 0)

Question 5

NUMBER OF PERIODS

(NPER)

Answer 5

TOTAL COMPOUNDING PERIODS REQUIRED TO REACH PRESENT OR FUTURE VALUE OF $

Question 6

NPER - FORMULA

Answer 6

=NPER(RATE, PMT, -PV, FV, 0)

Question 7

COMPOUND ANNUAL GROWTH RATE

(CAGR)

Answer 7

ANNUAL GROWTH RATE BASED ON PRESENT SUM & FUTURE SUM OF $

Question 8

CAGR - FORMULA

Answer 8

=RATE(TOTAL YEARS, PMT, -PV, FV, 0)

Question 9

PAYMENT

(PMT)

Answer 9

PAYMENT REQUIRED TO REACH FUTURE SUM OF $

Question 10

PMT - FORMULA

Answer 10

=PMT(PERIODIC RATE, TOTAL PERIODS, -PV, FV,0)

Question 11

PERIODIC RATE

Answer 11

INTEREST RATE / COMPOUNDING PERIODS PER YR

Question 12

TOTAL PERIODS

Answer 12

PERIODS PER YR X YRS

Question 13

ANNUAL COMPOUNING

Answer 13

INTEREST APPLIED ON ANNUAL BASIS

(1 COMPOUNDING PERIOD PER YR)

Question 14

ANNUAL COMPOUNDING - FORMULA

Answer 14

=(1 + ANNUAL RATE)^TOTAL YRS

EX: $1,000 EARNING 4% PYR, FOR 5 YEARS

=(1 + .04)^5

=(1.04)^5

=1.2167

$1,000 X 1.2167 = $1,216.70

Question 15

NON-ANNUAL COMPOUNDING

Answer 15

COMPOUNDING OCCURS MORE FREQUENTLY THAN ANNUAL BASIS

EX: MONTHLY, QUARTERLY

Question 16

NON-ANNUAL COMPOUNDING - FORMULA

Answer 16

=(1 + PERIODIC RATE)^TOTAL PERIODS

EX: $1,000 EARNING 4% PYR, QUARTERLY COMPOUNDING FOR 5 YRS

4% / 4 PYR = 1% PERIODIC RATE

4 PYR X 5 YRS = 20 TOTAL PERIODS

=(1 + .01)^20

=(1.01)^20

=1.2202

=$1,000 X 1.2202

=$1,220.19

Question 17

ANNUAL DISCOUNTING

Answer 17

SUM OF $ DISCOUNTED ONCE PER YEAR

Question 18

ANNUAL DISCOUNTING - FORMULA

Answer 18

=(1 + ANNUAL RATE)^TOTAL YRS

$1,000, 4% ANNUAL RATE, 5 YR DISCOUNTING

=(1 + .04)^5

=(1.04)^5

=1.2167

$1,000 / 1.2167 = $821.89 PV

Question 19

NON-ANNUAL DISCOUNTING

Answer 19

DISCOUNTING OCCURS MORE FREQUENT THAN ANNUAL BASIS

EX: BI-MONTHLY, QUARTERLY, MONTHLY

Question 20

NON-ANNUAL DISCOUNTING - FORMULA

Answer 20

=(1+ PERIODIC RATE)^TOTAL PERIODS

$1,000, 4%, MONTHLY DISCOUNTING, 5 YRS

4% / 12 PYR = .0033 PERIODIC RATE

12 PYR X 5 YRS = 60 TOTAL PERIODS

=(1 + .0033)^60

=(1.003)^60

=1.2186

$1,000 / 1.1969 = $820.61