6 May 2014 The most basic time value of money formula that links PV with FV is Answer: You are essentially asked to compound $80,000 for 10 years at 10% annual compound- regarding the question as asking for FV10 = PV (1+r). 19 Feb 2014 http://ishbv.com/manifmagic/pdf Solution P = 10,000 R = 10% = 0.10 T = 4 years 9 months 9 =4 = 4.75 12 S = P (1 + RT ) PRACTICE 1 1. Simple Interest – Present Value The formula to calculate the present value is given What is the present value of the annuity if the first cash flow occurs: a) today. PV of annuity due = $5,772.19 b) one year from today. PV of ordinary annuity = $5,550.18 c) two years from today. PV of a deferred annuity = $5,550.18 / 1.04 = $5,336.71 d) three years from today. If $18,000 is invested at 2.5% for 20 years, find the future value if the interest is compounded the following ways: (a) continuously (b) simple (not compounded) (Round the answers to the nearest c FV = the future value of a sum of money. PV = the present value of the same amount. r = the interest rate, or the growth rate per period. n = number of periods of growth If we know any three of the quantities, we can always find the fourth one.

## From time to time we are faced with problems of making financial decisions. interest and rate of discount, and the present and future values of a single payment. Solution: The interest charges for year 1 and 2 are both equal to. 2, 000 × 0.08

You are asked to calculate the present value of a 12-year annuity with payments of $50,000 per year. Calculate PV for each of the following cases. (a) The annuity Nominal and Effective Interest rates are common in problems where interest is stated in various ways. Published interest tables, closed-form time value. Demonstrate the use of timelines in time value of money problems. 1 These notes Solution. The future value of your deposit is: FV = $687,436.81χ1.055. 7. irrelevant as long as the future value is twice the present value for doubling, three times as large for tripling, etc. To answer this question, we can use either the

### Questions 155-157 are from the previous set of financial econom ics questions. Question 158 is new. • Questions 66, 178, 187-191 relate to the study note on approximating the effect of changes in interest rates. • Questions 185-186 and 192-195 relate to the study note on determinants of interest rates.

These questions are representative of the types of questions that might be asked of candidates sitting for the Financial Mathematics (FM) Exam. These questions are intended to represent the depth of understanding required of candidates. The distribution of questions by topic is not intended to represent the distribution of questions on future Step 1: Find the future value of the annuity due. $1000 × (1+.0625)17 −1 .0625 +$1000 = $29,844.78 Step 2: Take this amount that you will have on December 31, 2028, and let it go forward five years as a lump sum. $29,844.78 ×(1 +.0625)5 = $40,412.26 Mortgage Payment 7. PV(Present Value): PV is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.