00:00

Understanding Financial Concepts: Future Value, Present Value, Annuity, and Interest

Future value, present value, annuities, and interest are important financial terms to comprehend when dealing with investments. Future value represents the value of an investment at a future date, while present value is the current value of a future amount. Annuities are streams of periodic cash flows, and interest can be simple or compound, affecting the growth of investments differently.

dinkova
Download Presentation

Understanding Financial Concepts: Future Value, Present Value, Annuity, and Interest

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Important Terms related to Important Terms related to Techniques Techniques Future Future Value Value Future value is also known as terminal value. The accrued amount FVnon a principal P after n payment periods at i (in decimal) rate of interest per payment period is given by FVn= P0(1+i) where, ? ?????? ???? ?? ???????? ?????? ?? ??????? ??????? ??? ???? = i= ? (1+i)nis known as future value factor or compound value factor.

  2. Present Present Value Value Present value is the current value of a 'Future Amount'. It can also be defined as the amount to be invested today at a given rate over specified period to equal the ‘Future Amount’. Since, finding present value is simply the reverse of finding Future Value (FV), the formula for Future Value (FV) can be readily transformed into a present value formula. Therefore, the P0(the present value) becomes P0= FVn/(1+i)nor P0= FVn(1+i)-n where,  FVnFuture value n years hence  i = Rate of interest per annum  n= Number of years for which discounting is done

  3. Annuity Annuity Annuity a stream of equal periodic cash flows over a specified time period. It can be inflows an outflows. TYPES TYPES  Ordinary Annuity  Annuity Due

  4. F Future uture Value of Ordinary Annuity Value of Ordinary Annuity FVn = CF×(?+?)?−? ? F Future uture Value FVn = CF×(?+?)?−? Value o oF F Annuity Annuity DUE DUE × (1+r) ?

  5. present present Value of Ordinary Annuity Value of Ordinary Annuity PVn =?? ? ?× ?− (?+?)? present present Value of Value of Annuity Annuity DUE DUE PVn =?? ? ?× ?− (?+?)?× (1+r)

  6. Simple interest Simple interest Simple interest is calculated as a simple percentage of the original principal amount. The formula for calculating simple interest is SI=P0(i) (n) where,  SI= Simple interest in rupees  P0= Original Principal  i= Interest rate per time period  n= Number of time periods If we add principal to the interest, i.e. P0+ P0(i) (n), we will get the total Future Value (FV).

  7. Compound Interest Compound Interest In compound interest, the interest is calculated on total of previously earned interest and the original principal. Naturally, the amount calculated on the basis of compound interest rate is higher than the simple rate. when calculated with

More Related