Chapter-3

Time Value of Money

 Concept of Time value of money
 The time value of money is a basic financial concept that holds that
money in the present is worth more than the same sum of money to be
received in the future.
 A rupee of today is worth more than a rupee that will be received at
some future date.
 Consideration of the timing of cash flows is known as time value of
money.
 This is true because money that you have right now can be invested and
earn a return, thus creating a larger amount of money in the future.
 A concept to understand the value of cash flow occurred at different
period.
 An idea that money available at the present time is worth more than
same amount in the future due to its potential earnings capacity.

 Significance/ Application of Time value of money

 Time value of money is widely used concept in finance literature.
There is no doubt, time value of money is extremely applicable in real
life.
 Financial decision without considering time value of money is
incomplete and may be wrong.
 The concept of time value of money is significant in the following
areas of financial decision:
 Investment Decision
If initial investment < PV of Future benefits = we Accept the decision
If initial investment > PV of Future benefits = we Reject the decision
If initial investment = PV of Future benefits = we Wait
 Financing Decision
It is concerned with the designing optimum capital structure and
raising funds from the least cost sources.
  Terminologies used in Time Value of Money
 Interest Rate (cost of money) and Effective Interest Rate
 Cash Flows and Time line
 Present value and Future value
 Discounting and Compounding

Present discounting
Future compounding

PV, FV, n, i, PMT

 Present Value
 The value of future sum of money at present i.e. cash in hand today.
 It refers to the current value of money or value of money at zero years.
 It is the current value of future cash flow.
 The present value is the today’s value of a future cash flow discounted
at the appropriate rate.
 Present value is based on compound interest, that is current period
interest is based on the principal amount plus the interest for all prior
period.

 Present value of a single amount (Lump sum amount)

 When company will receive or pay a lump sum amount expected in a
year of the future, present value concept helps to know that amount is
received is paid today.
 Present value of a lump sum is also called present value for a single
period case.
 Present value can be calculated using the following formula

By using Formula Method

𝐅𝐕
PV═(𝟏+𝐢)𝐧

By using Table Method

PV═ FV (PVIF i,n)
Where,
PV ═ Present value
FV ═ Future Value
i═ interest rate
n═ number of period

For example:
Q. Find out the present value of Rs. 1,000 receivable in 5 years assuming
10% interest rate or discount rate.
Solution:
Future value (FV) ═ Rs.1,000
Discount rate (i) ═ 10% interest rate
Time period (n) ═ 5 years
Present value (PV) ═ ?
Now,
We know that

FV Rs 1,000
PV═( = (1+0.10)5
1+i)n

═ Rs.620.90
Therefore, An amount Rs. 620.90 to be deposited into bank to get Rs. 1,000
at the end of 5 years at interest rate of 10%
Or
PV═ FV (PVIFi,n)
═1000 (PVIF10%, 5)
═Rs 1000 x 0.6209
═ Rs. 620.90

Future Value
 A present sum of money plus stream of interest amount received during
investment period.
 It is the amount to which a present sum of money will grow after
earning interest.
 Future value can be calculated using the following formula
By using formula method

FV ═ PV (1+i)n

By using Table

FV═ PV (FVIFi,n)

Where,
FV═ Future value of a sum of money at the end of the period
PV═ present value or sum of money today
i═ the annual interest rate or compound interest rate
n═ the number of years or compounding period

Example: Problem no 3.1

Calculate the future and present value of the following
a. An initial Rs 500 compounded for 10 years at 12% interest rate.
Given,
Present Value (PV) ═ Rs.500
No of years/period (n) ═ 10 years
Compounding or interest rate (i) ═ 12%
Future Value (FV) ═?
Solution:
We know that,
FV═ PV (1+i)n
═ Rs. 500 (1+0.12)10
═ Rs.1552.90
Alternatively,
FV═ PV (FVIF i, n)
═ Rs 500 (FVIF12%, 10)
═ Rs 500 x 3.1058
═ Rs1552.90

b. Present Value (PV) ═ ?

No of years/period (n) ═ 10 years
Discounting or interest rate (i) ═ 6%
 Future Value (FV) ═ Rs 500
We know that,
PV═ FV (PVIFi,n)
═Rs 500 (PVIF 6%,10)
═ Rs 500 x 0.5584
═ Rs279.20

Problem 3.2. Solution

Future Value (FV) ═ Rs. 100000
No of years/period (n) ═ 6 years
Discounting or interest rate (i) ═ 11%
Present Value (PV) ═ ?

Solution:
We know that,

FV
PV═
(1+i)n

Rs.100000
═
(1+0.11)6
═ Rs. 53,464.08
The fund worth Rs 53,464.08 today
Problem no 3.3
Present Value (PV) ═ 0.5 million
No of years/period (n) ═ 4 years
Interest rate (i) ═ 100%
Future Value (FV) ═ ?
We know that
FV═ PV (1+i)n
═ 0.5 million (1+1)4
═ Rs 8 million
Problem no 3.7
Present value (PV) ═ Rs 200
Future value (FV) ═ Rs 400
No of years (n) ═ ?
a. If interest rate (i) ═ 7%
We know that

FV═ PV (1+i)n
Or Rs 400 ═ Rs 200 (1+0.07)n
Or (1.07)n ═ 2
Taking log on both sides
nlog 1.07 ═ log 2
……………

Problem no 3.8
Solution
a. Sales in 2007 (s0) ═ Rs 6 million (Present value)
Sales in 2012 (s1) ═ Rs 12 million (Future value)
No of year (n) ═ 5 years
Growth rate (g) ═ ?
Now,
The formula FV═ PV (1+i)n can be rearranged as S1 ═ S0(1+g)n to compute
growth rate
S1 ═ S0 (1+g)n
Or Rs 12m ═Rs 6m (1+g)5
Or (1+g)5═ 2
Or (1+g)5x1/5═ 21/5
Or g = 0.1487 ═ 14.87%
Hence, the sales have been growing at 14.87% annually over past five year
period
b. This calculation ignores the time value of money or compounding
impact. It is simply arithmetic calculation.
Annuity
 An annuity is a series of equal payment of fixed amount at each equal
interval of time for a given number of periods.
 An annuity is a series of equal payments expected to be received or
paid at regular future intervals.
 An annuity can be divided in to two types

Ordinary annuity
Series of equal payment at the end of each equal interval of time throughout
the period.
Time 0 1 2 10% 3 4

PV 100 100 100 100 FV

Annuity due
Series of equal payments occur at the beginning of each equal interval
throughout the period

Time 0 1 2 10% 3 4

PV 100 100 100 100 FV

The following information must be known:

 The number of interest compounding periods
 The interest rate per compounding period
 Use the present value or future value of an annuity of Re 1 table by
selecting the row equal to the number of period and column equal to the
interest rate
  Future value of ordinary annuity: payment made at end

Using formula solution

FVAn ═ PMT [ (𝟏+𝐢)𝐧 −𝟏]

𝐢
]
Using tabular solution

FVAn ═ PMT (FVIFA i, n)

 Future Value of annuity due: payment made at beginning

Using formula solution

FVAn ═ PMT [ (𝟏+𝐢)𝐧 −𝟏]

𝐢
] (1+i)
Using tabular solution

FVAn ═ PMT (FVIFA i, n) (1+i)

Where,
FVAn ═ future value of annuity
PMT ═ annual amount of equal payment
n ═ no of compounding period
i ═ annual rate of interest
 Present value of an Annuity

 Present value of ordinary annuity: payment made at end

Using formula solution

PVA═ PMT [ 𝟏 −
𝟏
(𝟏+𝐢)
𝐢
𝐧
]
Using tabular solution

PVA ═ PMT (PVIFA i, n)

 Present Value of annuity due: payment made at beginning

Using formula solution

PVA═ PMT [ 1−
(1+i)
i
1
n
] (1+i)

Using tabular solution

PVAn ═ PMT (PVIFA i, n) (1+i)

Where,
PVAn═ present value of annuity
PMT ═ installment or annual amount of equal payment
i═ interest rate
n═ number of period
Problem 3.10
Solution
a. Periodic equal payment (PMT) ═ Rs.400
Interest rate (i) ═ 10%
Time period (n) ═ 10 years
Future value of annuity (FVA) ═ ?
Now,
We know that

FVAn ═ PMT [ (1+i)n −1]

i
]
═ 400[ ]
(1+0.1)10 −1]
0.1
═ 400x15.9374
═ Rs. 6374.9
Alternatively,
FVAn ═ PMT (FVIFA i, n)
═Rs 400 (FVIFA 10%, 10)
═ Rs 400 x 15.9374
═ Rs 6374.9
b. Periodic equal payment (PMT) ═ Rs.400
Interest rate (i) ═ 0%
Time period (n) ═ 5 years
Future value of annuity (FVA) ═ ?
FVA ═ 400 + 400 +400 +400 +400 ═ Rs 2000
c. If payment made at the beginning of the period that is, they are
annuities due
i. Periodic equal payment (PMT) ═ Rs.400
Interest rate (i) ═ 10%
Time period (n) ═ 10 years
Future value of annuity (FVA) ═ ?
Now,
We know that
FVAn ═ PMT (FVIFA i, n) (1+i)
═Rs 400 (FVIFA 10%, 10) (1+0.10)
═ Rs 400 x 15.9374 x 1.10
═ Rs 7012.456
Problem no 3.15
a. Present Value (PV) ═ Rs.700
No of years/period (n) ═ 1 years
Interest rate (i) ═ ?
Future Value (FV) ═ Rs749
Solution:
We know that,
FV═ PV (1+i)n
Rs 749 ═ 700 (1+i)1
Or i ═ 0.07 ═ 7%
b. …….. ….. do your self
c.
Present Value (PV) ═ Rs.9000
Periodic payment (PMT) ═ Rs2648.80
No of years/period (n) ═ 5years
Interest rate (i) ═?
We know that,
PVAn ═ PMT (PVIFA i, n)
Rs 9000 ═ Rs 2648.80 (PVIFA i, 5)
𝑅𝑠 9000
(PVIFA i, 5) ═ ═ 3.3522
2684.80

According to PVIFA table the value of 3.3522 at 5th period lies at 15%.
Therefore the required rate of interest is 15%.

Perpetuity
 An infinite stream of equal payment
 Note that future value of perpetuity cannot be workout because the
future periods are indefinite.
 An ordinary annuity whose payments a receipts continue for ever.
 Perpetuity is a stream of equal payment made at the end of equal
interval of time for indefinite period.
Payment (PMT)
PVperpeuiy =
Interest rate (I)
Uneven cash flow streams
If there are multiple cash flows randomly in different period, is called uneven
cash flows.
Present value of uneven cash flow stream

𝐂𝐅𝟏 𝐂𝐅𝟐 𝐂𝐅𝟑 𝐂𝐅𝐧

PV= +( +( + ⋯……….(
(𝟏+𝐢)𝟏 𝟏+𝐢)𝟐 𝟏+𝐢)𝟑 𝟏+𝐢)𝐧

Future value of uneven cash flow stream

FV ═ CF1 (1+i)n-1+ CF2 (1+i)n-2+ CF3 (1+i)n-3+……… CFn (1+i)n-n

3.16
Solution
If rate of interest is 8%
Calculation of present and future value at 8% interest rate

Year Present value Future value

Cash flow PVIF at PV FVIF ═ (1+i)n-t FV
8%
1 100 0.9259 92.59 (1+0.08)6-1═1.4693 146.93
2 100 0.8573 85.73 (1+0.08)6-2═1.3605 136.05
3 100 0.7938 79.38 (1+0.08)6-3═1.2597 125.97
4 200 0.7350 147 (1+0.08)6-4═1.1664 233.28
5 300 0.6806 204.18 (1+0.08)6-5═1.0800 324
6 500 0.6302 315.10 (1+0.08)6-6═1 500
TPV═ 923.98 TFV═ 1466.23

Problem no. 3.17……

Problem no 3.18

Cash flow time line

i= 11%
0 1 2 3 4

500000 -200000 200000 300000 400000

year Cash flow PVIF at PV

11%
0 500000 1 500000
1 (200000) 0.9009 (180180)
2 200000 0.8116 162324
3 300000 0.7312 219357
4 400000 0.6587 263492
TPV═ 964993

Alternatively,
𝐂𝐅𝟎 𝐂𝐅𝟏 𝐂𝐅𝟐 𝐂𝐅𝟑 𝐂𝐅𝟒
PV= +( +( +( +(
(𝟏+𝐢)𝟎 𝟏+𝐢)𝟏 𝟏+𝐢)𝟐 𝟏+𝐢)𝟑 𝟏+𝐢)𝟒
The effect of compounding: Semiannual and other
For any compounding period less than one year, we make following two
changes in all present and future value calculations:
 First, the rate of interest (i) is divided by the number of compounding
periods (m) during the year, and
 Second, the number of years that cash flow occurs (n) is multiplied by
the number of compounding period (m) during the year.
i/2, nx2 i/4, nx4 i/12, nx12
Annual Percentage Rate
 The rate of interest quoted in all borrowing and lending are annual
percentage rate. And Annual percentage rate is also known as a simple
annual rate.
 Interest rate per period multiplied by number of compounding in a year.
Annual Percentage Rate (APR) ═ Periodic rate x no of compounding
period (m)

The Effective Annual Rate

 An annual equivalent rate of some semi-annual or other rate.
 Effective annual rate is the rate that would produce same terminal value
if the annual compounding was used.
 It is calculated as follows:

EAR ═ [1+ ]m-1

𝐀𝐏𝐑
𝐦

Where,
EAR ═ Effective Annual Rate
APR═ Annual percentage rate
m═ no of compounding period in a year

Periodic Rate
The interest rate for each interest period such as monthly, quarterly,
semiannually, annually
The rate of interest charged by lender or paid by borrower at each interest
period is known as periodic rate.
 𝐀𝐏𝐑
Periodic rate (iPER) ═
𝐦

Problem 3.20

a. …….
b. Present value (PV) ═ Rs 500
Interest rate (i) ═ 12% (compounded semiannually)
Number of year (n) ═ 5years
Future value (FV) ═?
We know that,
i
FV ═ PV (1+ ) nx2
2

FV ═ 500 (1+ 0.06)10

FV ═ Rs 895.42

c. …
d. …..
Problem no 3.22

a. FVA n ═ PMT [ (𝟏+𝐢/𝟐)𝐧 𝐱𝟐 −𝟏]

𝐢/𝟐
]
FVA n ═ Rs 5272.12
Alternatively
FVA n ═ PMT (FVIF 6%, 10)

b. FVA n ═ Rs5374.08

c. It is because, if other things remain constant, higher the number of

compounding period higher will be the future value and vice versa.
Problem no 23
Given,
a) Present value (PV) ═ Rs 50,000
Interest rate (i) ═ 6%
Number of year (n) ═ 7 years
Future value (FV) ═?
We know that,
FV ═ PV (1+i)n
FV ═ 50000 (1+ 0.06)7
═ Rs 75181.51
b) Present Value (PV) ═ 50000
Interest rate (i) ═ 6% (semiannually compounding)
Number of years (n) ═ 7 years (semi annually period)
Future value (FV) ═ ?
We know that,
FV ═ PV (1+i)n
FV ═ 50000 (1+0.03)14
═ Rs 75629.49
c) The computed figure in part (b) is higher because of more
compounding frequency than in part (a)

Problem 3.24
Here,
Sanima Bank’s interest rate (i) ═ 8%
Sangrila Bank’s quoted rate (i) ═?
Now,
𝑖𝑠𝑖𝑚𝑝𝑙𝑒
Effective annual rate (EAR) ═ (1+
𝑚
)m -1
If sanima bank pays 8% interest, compounded quarterly
0.08 4
Then, EAR of Sanima bank (EAR) ═ (1+
4
) -1
 ═ 0.0824
═ 8.24 %
The Sangrila bank must have the same effective annual rate i.e ═
8.24%
EAR of Sangrila Bank ═ (1+12𝑖 )12 -1 ═ 0.0824

Therefore, Bank interest rate is compounded monthly

EAR of Sangrila Bank ═ EAR of Sanima Bank
(1+12𝑖 )12 -1 ═ 0.0824
𝑖
Or (1+
12
)12 ═ 1.0824
𝑖 1
Or (1+ ) ═ (1.0824)12
12
𝑖
Or (1+ ) ═ 1.0066
12
i ═ 7.92%
Hence, Sangrial Bank must quote 7.29% simple interest

Problem 3.25
The total interest paid by First Bank is the interest rate per period times the
number of period. In other words the interest by first bank paid over 10 years
will be:
0.07 x10 ═ 0.7

Second bank pays compound interest, so the interest paid by this bank will be
the FV factor of Re. 1 or (1+i) 10
According to question
Setting the two equal we get,
First bank ═Second bank
0.07 x10 ═ (1+i)10 -1
Or 0.7 ═ (1+i)10 -1
Or 1.7 ═ (1+i)10
1
Or i ═ (1.7)10
═ 0.545
═ 5.45%
Hence the second bank should set 5.54 percent annual compound rate if it
wants to match First bank over an investment horizon of 10 years
Problem no 3.26
Himalayan Bank’s interest rate (i) ═ 7% annual compounding
NB Bank’s quoted rate (i) ═ 6.5% quarterly compounding
a. We have
𝑖𝑠𝑖𝑚𝑝𝑙𝑒 m
Effective annual rate (EAR) ═ (1+
𝑚
) -1
For Himalayan bank
(EAR) ═ (1+ )1 -1 ═ 0.07 ═7%
0.07
1
For NB Bank
(EAR) ═ (1+
0.065
4
)4 -1 ═ 0.0666 ═6.66%
We prefer the Himalaya bank due to higher effective annual rate.
b. If we want to withdraw the funds during the year as opposed to at the
end of the year, NB bank may be preferable to deposit. Since no
interest would be earned on Himalayan bank.
 Problem no 29.
Interest rate ═ 7%
year CF FVIF ═ ((1+i)n-t FV
1 50000 ═ (1+0.07)3-1═1.1449 57245
2 55000 ═ (1+0.07)3-2═1.07 58850
3 60500 1 60500
Future value 176595
You would have Rs 176595 available for down payment of car in 3 years
If interest were compounded quarterly, the appropriate discount rate would
be:
0.07 4
EAR ═ (1+
4
) -1 ═ 7.19%

Therefore, the future value of given cash flow stream is:

FV ═ 50000 (1+0.0719)3-1+ 55000 (1+0.0719)3-2+ 60500(1+0.0719)3-3
═ Rs 176904.50
If interest were compounded quarterly, you would have Rs 176904.50
available for down payment in 3 years.
Amortization of Loan
 An amortized bond is a type where each payment goes towards both
interest and principal.
 A loan to be repaid in equal installment throughout the given period.
 Amortized loan refers to the loan that is to be repaid in equal periodic
installment including both interest and principal.
 The principal (face value) on the debt is paid down regularly, along with its
interest expense over the life of the bond.
 A loan to be repaid in equal installment throughout the given period.

 Determining the annual payment

Amount of Loan
PMT or Installment ═ PVIFA(i,n)

Problem 3.31
Given
Interest rate (i) = 10 %
No of period (n) = 5 years
Amount of loan = Rs 2500000
Now,
Amount of Loan
a. PMT or installment ═
PVIFA(i,n)
Rs 2500000
═
PVIFA(10%,5)
2500000
═
3.7908
= Rs. 6,59,491
 Loan amortization schedule
Year Beginning Payment or Interest Re-payment of Ending balance
amount Installment principal (6)= 2 − 5
(1) ( 2) (3) (4)= 2 × 10% (5)= 3 − 4
1 2500000 659491 250000 409491 2090509
2 2090509 659491 209051 450440 1640069
3 1640069 659491 164007 495484 1144585
4 1144585 659491 114459 545033 599551
5 599551 659491 59955 599551* 0
*the last payment must be larger to force the ending balance to
zero

b. Interest rate (i) = 10 %

No of period (n) = 5 years
Amount of loan = Rs 5000000
Annual payment = ?
Now,
Amount of Loan
PMT or installment ═
PVIFA(i,n)
Rs 5000000
═
PVIFA(10%,5)
5000000
═
3.7908
= Rs. 1318983

c. Interest rate (i) = 10 %

No of period (n) = 10 years
Amount of loan = Rs 5000000
Annual payment = ?
Now,
Amount of Loan
PMT or installment ═
PVIFA(i,n)
Rs 5000000
═
PVIFA(10%,10)
 5000000
═
6.1446
= Rs. 813723

Problem no 3.33
Given
Interest rate (i) = 12 %
No of period (n) = 4 years
Amount of loan = Rs 1500000
Now,
Amount of Loan
a. PMT or installment ═
PVIFA(i,n)
Rs 1500000
═
PVIFA(12%,4)
1500000
═
3.0373
= Rs. 49386

b.
Loan amortization schedule
Year Beginning Payment or Interest Re-payment of Ending balance
amount Installment principal (6)= 2 − 5
(1) ( 2) (3) (4)= 2 × 12% (5)= 3 − 4
1 1500000 493860 180000 313860 1186140
2 1186140 493860 142337 351523 834617
3 834617 493860 100154 393706 440911
4 440911 493860 52909 440911 0
*the last payment must be larger to force the ending balance to
zero
c.
Repayment of principal in year 2
Percentage of principal in year 2 =
Installment or payment
351523
=
493860
=0.7118 =71.18%
 Payment of interest in year 4
d. percentage of interest in year 4 =
Installment or payment
52909
=
493860
=0.1071
=10.71%
Problem no 3.35

First alternative
Interest rate (i) = 12%
No of period (n) = 2 years
Payment (PMT) = 𝑅𝑠 300000
First, we calculate the effective annual rate
0.12 4
EAR ═ (1+
4
) -1 ═ 0.1255 ═ 12.55%

The present value of first alternative if compounded quarterly

PMT PMT
PV= (1+i)11 + (1+i)22
300000 300000
= (1+0.1255)1 + (1+0.1255)2

= Rs 503374

Second alternative
Interest rate (i) = 12%
No of period (n) = 2 years
Initial bonus (CF0) = Rs 300000
Payment at the year 2 (CF2) = Rs200000
The present value of second alternative if compounded quarterly
CF
PV= CF0 + (1+i)2 2
200000
= Rs 300000 + (1+0.1255)2
= Rs 457884
 Since the present value of first alternative is greater, the first
alternative or option is preferable.

Problem 3.36
Future value of annuity (FVA) ═ Rs 10,000
Periodic equal payment (PMT) ═ Rs.1, 750
Interest rate (i) ═ 6%
Last deposit will be more than Rs. 1750 if needed to round out to Rs. 10000
Time period (n) ═ ?
Now,
Time line
Time 0 6% 1 2 3 ……. n

1750 1750 1750 1750+ additional

amount if needed
FV═1000
Calculation of time period

FVAn ═ PMT [ (1+i)n −1]

i
]
Or Rs 10,000 ═ 1750
10,000×0.06
[ (1+0.06)n −1]
0.06
]
Or ═ (1.06)n- 1
1750

Or 0.3429 ═ (1.06)n-1
Or 1.3429 ═ (1.06)n
Taking log on both sides
Log 1.3429 ═ n log 1.06
Log 1.3429
n═
log 1.06
 0.1280
n═
0.0253

═ 5.05 years or 5 years

However, last deposit must be somewhat above Rs 1750 as actual value of n
is slightly more than 5
Future value of 1st four payments

FVA4 ═ PMT (FVIFA i, n) (1+i)

FVA4 ═ 1750 (FVIFA6%,4) (1+0.06)
═ 1750 X4.3746 X1.06
═ 8114.90
Hence, amount of last deposit to accumulate Rs 10000 should be Rs 1885.10
i.e (Rs. 10000-Rs 8114.90)

Problem 3.37
PVA ═ PMT1 (PVIFA9%,5 years) + PMT2 (PVIFA9%,6 to 15years)

340.47 ═ 50x3.8897 + PMT2 x 4.1710

PMT2 =
Calculation of PVIFA factor for 6 to 15 years
(PVIFA9%,6to 15 years) = (PVIFA9%, 15 years) - (PVIFA9%,5 years)
= 8.0607-3.8897
= 4.1710
Problem no.3.39
Periodic payment (PMT) = Rs 150000
No of period (n) = 10 period
There are total 10 periods of 2 years rate of interest at an annual rate of 10
percent compounded for every two years will be equivalent to:
(1+0.10)2 -1 = 0.21 =21%
Now,
PVA ═ PMT (PVIFAi, n)
 ═ Rs 150000 (PVIFA 21%, 10)
═ Rs 150000 x 4.0541
═ Rs 608115

Problem 3.42
a. given,
Present value (PV) ═ Rs1000
Interest rate (i) ═ 8%
Number of period (n) ═ 3 years
Future value (FV) ═ ?
We have,
FV ═ PV (1+i)n
FV ═ 1000 (1+ 0.08)3
═ Rs. 1259.71
b. Present value (PV) ═ Rs1000
Interest rate (i) ═ 8% (compounded quarterly)
Number of period (n) ═ 3 years
Future value (FV) ═ ?
We have,
FV ═ PV (1+i/4)nx4
FV ═ 1000 (1+ 0.02)12
═ Rs 1268.24
c. Here,
Periodic payment (PMT) ═ Rs250
Interest rate (i) ═ 8%
Number of period (n) ═ 4years
Future value (FV) ═ ?
Now
FVA (due) ═ PMT (FVIFA i, n) (1+i)
═ 250 (FVIFA 8%, 4) (1+0.08)
═ Rs 250 x 4.5061 x1.08
═ Rs1216.65
d. Here,
 Periodic payment (PMT) ═?
Interest rate (i) ═ 8%
Number of period (n) ═ 4years
Future value (FV) ═ Rs. 1259.71
We have,
FVA ═ PMT (FVIFA i, n)
1259.71═ PMT (FVIFA 8%, 4)
1259.71 ═ PMT x 4.5061
PMT ═ Rs 279.55

Problem 3.43
a. Present value of ordinary
PVA ═ PMT (PVIFAi, n)
═Rs. 10,000 (PVIFA5%, 15)
═Rs. 10,000 X10.3797
═ Rs 1, 03,787
b. Present value of ordinary annuity if compound annual interest
rises to 10 percent

PVA ═ PMT (PVIFAi,n)

═ Rs 10,000 (PVIFA10%,15)
═ Rs 10000 X7.6061
═ Rs 76,061
c. If Mr. Nepal has Rs 30000 to put into the annuity the payment he
receives every years through 15 years is given by
PVA ═ PMT (PVIFAi,n)
Or Rs 30000 ═ PMT (PVIFA5%, 15)
Or Rs 30000 ═ PMT X10.3797
30000
Or PMT ═
10.3797
═Rs 2890.26