TVM

Question 1

Simple Interest formula

Answer 1

FV = PV x [1+n(i)]

Question 2

Compound Interest formula

Answer 2

FV = PV × (1+(i)n)

Question 3

nominal interest

Answer 3

the quoted rate of interest which can be compounded once or more per annum (“10% per annum, compounded quarterly”)

Question 4

effective rate

Answer 4

annual rate that considers compounding (You earn 2.5% four times, which gives you effectively 10.38% per annum)

Question 5

What is the effective rate if the interest rate is compounded once per annum?

Answer 5

the same as the nominal rate

Question 6

What is the effective rate, if 100 is invested with a nominal return rate of 10% per annum compounded quarterly.

Answer 6

10.38%
10=NOM%
4=P/YR
EFF%=10.38%

Question 7

Bank A offers a rate of 9%, compounded monthly. What is the Effective rate

Answer 7

Bank A: 9 Shift NOM% (Nominal Interest rate)
12 Shift P/YR (The number of compounding periods per year) Shift EFF% 9.3807% (Annual effective interest rate)

Question 8

Present Value (PV)

Answer 8

a single lump sum tells you how much an amount (to be paid at a specified date in the future) is worth today (or at any date prior to the payment date).

Question 9

Future Value (FV)

Answer 9

a single lump sum tells us how much an amount will be worth at a future date

Question 10

Does BEG/END mode matter in lumpsum calculations.

Answer 10

No

Question 11

What is TVM?

Answer 11

principle that an amount of money is worth more today than it will be in the future. Assuming zero inflation.

Question 12

What determines Value?

Answer 12

The value of any asset is the sum of the PV of cash Flows expected to be derived from the Asset.

Question 13

Rule of 72

Answer 13

How long it will take the purchasing power of money to halve/double at a given inflation rate.
72/present inflation rate.

Question 14

Rule of 69/ Rule of 70

Answer 14

method for determining the combination of interest rate and the number of years needed to double your money if interest is continuously compounded.
69/interest rate

Question 15

What assumptions should you make for amortisation questions, unless you are told otherwise.

Answer 15

12 P/YR
END mode

Question 16

Break down BODMAS

Answer 16

Brackets; Others(integers&indices); Division/Multiplication; Addition/Subtraction.

Question 17

Investments are often calculated in which mode?

Answer 17

BEGIN mode.

Question 18

When calculating loan repayments which mode should you use

Answer 18

END mode, because you only start paying at the end of the month

Question 19

Bob purchased a car for 200,000. Bob got a car loan which requires payment over 5 years at an interest rate of 6.8%. if interest is compounded monthly determine the payment in arrears required over 5 years.

Answer 19

END mode
12 P/YR
200,000 PV
6.8 I/YR
5 Shift N (xP/YR)
PMT - 3941

Question 20

“N”

Answer 20

periods per year. compounding periods.

Question 21

“PV”

Answer 21

todays current value.

Question 22

I/YR

Answer 22

interest received or to be paid.

Question 23

P/YR

Answer 23

payment periods

Question 24

NOM%

Answer 24

Nominal interest rate

Question 25

EFF%

Answer 25

Effective rate

Question 26

FV

Answer 26

Future Value, always occurs at the end of the last period.

Question 27

AMORT

Answer 27

Calculate the amortisation table using the current PV, PMT, I/YR and P/YR values

Question 28

P/YR

Answer 28

number of compounding periods per year.

Question 29

PMT

Answer 29

a recurring payment irrespective of frequency, monthly, annually, quarterly etc.

Question 30

Bob invest 2000 as a lumpsum investment that will grow at 10% compounding monthly for 1 year. What will the value of his investment be at the end of the year.

Answer 30

1. SHIFT CLEAR ALL
   BEGIN MODE (most investments are in the beginning of a period)
   12 P/YR
   2000PV
   10I/YR
   12N (only if you can quickly calculate the number of periods) or 1 SHIFT N (years and the calculator will auto calculate)
   solve for FV 2209

Question 31

Bob invest 2000 as a lumpsum investment that will grow at 10% compounding monthly for 1 year. What will the value of his investment be if invested for four years.