Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. If you continue browsing the site, you agree to the use of cookies on this website. See our User Agreement and Privacy Policy.

Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. If you continue browsing the site, you agree to the use of cookies on this website. See our Privacy Policy and User Agreement for details.

Like this presentation? Why not share!

887 views

Published on

No Downloads

Total views

887

On SlideShare

0

From Embeds

0

Number of Embeds

2

Shares

0

Downloads

14

Comments

0

Likes

1

No embeds

No notes for slide

- 1. Faculty Guide:- Prof. Krutika Mistry Submitted By :- Disha Patel 27 Kalpan Patel 28 Section : - C SUB. :- Financial Management TOPIC : - Time value of Money (compounding)
- 2. INTRODUCTION: Why we need of time value of money? Why is time such an important element in your decision?.. Because…. Time allows you the opportunity to postone consumption and earn interest….. It compare the money between two period…. KALPAN PATEL
- 3. TYPES OF INTEREST: SIMPLE INTEREST: Interest earn and paid on only original amount or principal lent and borrowed. o COMPOUND INTEREST: Interest earn and paid on any previous interest earned as well as on the principal borrowed. KALPAN PATEL
- 4. FUTURE VALUE : To calculate time value of future amount there are two way.. future value of lum sum amount. future value of annuity. KALPAN PATEL
- 5. FUTURE VALUE OF LUM SUM AMOUNT: When an amount is deposited for a time period at a given rate of interest.. the amount that is accrued at the end is called the future value of the original investment. So if rs. P is invested for N period at R% per periods. FV= P(1+r)n KALPAN PATEL
- 6. FVIF: (1+r)n is the amount to which an investment of rs. 1 will grow at the end of N periods. It is called FVIF- future value interest factor. It is a function of r & N. It is given in the form of table for integer value of r & N. If the FVIF is known, the future KALPAN PATEL
- 7. CONTINUE…… value of any principal can be found by multiplying the principal by the factor. o the process of finding the future value is called COMPOUNDING…. KALPAN PATEL
- 8. EXAMPLE: Suhasini has deposited rs. 10000 for 5 years at 10%. Compounded annually.. P= Rs. 10000 N= 5years r= 10% FVIF=P(1+r)n = 10000(1+0.10)5 =10000 * 1.6105 =Rs. 16105 KALPAN PATEL
- 9. FUTURE VALUE ANNUITY: What is annuity?. It is a series of identical payments made at equally spaced interval of time. FVA= A/r[(1+R)N -1](1+r) Hance FVIFA(r,n)= A(r,n)*(1+r) It is the future value of annuity that pays Rs. 1 per period. For any annuity that pays Rs A per period, the future value can be found by multiplying A by the factor. KALPAN PATEL
- 10. FUTURE VALUE ANNUITY CONT…… The future value of an annuity due that makes N payments, is greater than that of a corresponding annuity, if the future value is computed at the end of N periods. Why?.... because each cash flow has to be computed for one period more. KALPAN PATEL
- 11. CONTI…… An annuity that pays forever is called a perpetuity. The future value of a perpetuity is obviously infinite. But a perpetuity has a finite present value. KALPAN PATEL
- 12. EXAMPLE: If David takes an LIC policy with a premium of Rs. 12000 per year for 25 years, what is the cash value at the end of 25 years?. F.V. = 12000*[ (1.10)25- 1 /0.10] *1.10 = Rs. 1298181.19 KALPAN PATEL
- 13. THANK YOU………. KALPAN PATEL

No public clipboards found for this slide

×
### Save the most important slides with Clipping

Clipping is a handy way to collect and organize the most important slides from a presentation. You can keep your great finds in clipboards organized around topics.

Be the first to comment