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MGMT 1B Appendix B Slides

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0% found this document useful (0 votes)
33 views15 pages

MGMT 1B Appendix B Slides

Uploaded by

w5w4fsfwz7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 15

1-1

Present and Future Value Concepts


• Value of assets and liabilities change over time.
• Change is due to interest.
• Example: Cash in savings earns interest.
• Present and future value computations help us
measure interest over time.
• Present value used to determine value of
future-day assets today.
• Future value used to determine value of
present-day assets at a future date.

© McGraw-Hill Education B-1


Learning Objective C1: Describe the earning of interest and the concepts of present and future values.
1-2

Present Value of a Single Amount


Exhib
for One Period it
B.2
Formula to compute present value of a single amount:
• p = present value (PV)
• f = future value (FV)
• i = interest rate per period
• n = number of periods

Illustration of PV of a Single Amount for One Period:


• p = $200
• f = $220
• i = 10%
• n=1
© McGraw-Hill Education B-2
Learning Objective P1: Apply present value concepts to a single amount by using interest tables.
1-3

Present Value of a Single Amount


Exhib
for Multiple Periods it
B.2
Formula to compute present value of a single amount:
• p = present value (PV)
• f = future value (FV)
• i = interest rate per period
• n = number of periods

Illustration of PV of a Single Amount for Multiple Periods:


• p = $200
• f = $242
• i = 10%
• n=2
© McGraw-Hill Education B-3
Learning Objective P1: Apply present value concepts to a single amount by using interest tables.
1-4

Using Present Value Table to


Compute PV of a Single Amount
Exhib
it
B.3
• Present value table helps with computations.
• Provides present values (factors) for variety of interest
rates and periods.
• Present value assumes that the future value equals 1.
• Present value of 1 table – Table B.1
• Formula to compute present value of a single amount:
• p = present value (PV)
• i = interest rate per period
• n = number of periods

© McGraw-Hill Education B-4


Learning Objective P1: Apply present value concepts to a single amount by using interest tables.
1-5

Present Value Table to Compute


PV of 1
• Case 1: solve for p of $220 when knowing i = 10% and n = 1.
• Table B.1: row for one period and column for 10%
• p = 0.9091
• p = $220 × 0.9091 = $200
• Case 2: solve for n when knowing i = 12%= and p =$13,000;
Want $100,000 in n years and have $13,000 today.
• $13,000 / $100,000 = 0.1300
• Table B.1: find value nearest to 0.1300 in 12% column
• n = 18 periods or 18 years
• Case 3: solve for i when knowing p = $60,000 and n = 9;
Want $120,000 in 9 years and have $60,000 today.
• $60,000 / $120,00 = 0.5000
• Table B.1: find nearest value to 0.5000 in row 9
• i = 8%
© McGraw-Hill Education B-5
Learning Objective P1: Apply present value concepts to a single amount by using interest tables.
1-6

Future Value of a Single Amount


Exhib
for One Period it
B.4
Formula to compute future value of a single amount:
• p = present value (PV)
• f = future value (FV)
• i = interest rate per period
• n = number of periods

Illustration of FV of a Single Amount for One Period:


• p = $200
• f = $220
• i = 10%
• n=1

© McGraw-Hill Education B-6


Learning Objective P2: Apply future value concepts to a single amount by using interest tables.
1-7

Future Value of a Single Amount


Exhib
for Multiple Periods it
B.4
Formula to compute future value of a single amount:
• p = present value (PV)
• f = future value (FV)
• i = interest rate per period
• n = number of periods

Illustration of FV of a Single Amount for Multiple Periods:


• p = $200
• f = $266.20
• i = 10%
• n=3

© McGraw-Hill Education B-7


Learning Objective P2: Apply future value concepts to a single amount by using interest tables.
1-8

Using Present Table to Compute


Exhib
FV of a Single Amount it
B.5
• Future value table helps with computations.
• Provides future values (factors) for variety of interest
rates and periods.
• Future value assumes that the present value equals 1.
• Future value of 1 table - Table B.2.
• Formula to compute present value of a single amount:
• f = future value (FV)
• i = interest rate per period
• n = number of periods

© McGraw-Hill Education B-8


Learning Objective P2: Apply future value concepts to a single amount by using interest tables.
1-9

Future Value Table to Compute PV of 1


• Case 1: solve for f when knowing i = 12% and n = 5;
Invest $100 for five years at 12%.
• Table B.2: row for five periods and column for 12%.
• f = 1.7623
• f = $100 × 1.7623 = $176.23 ($176.24 rounded)
• Case 2: solve for n when knowing i = 7%= and f =$3,000;
Have $2,000 and want $3,000 in n years at 7%.
• $3,000 / $2,000 = 1.500
• Table B.2: look in 7% column and find value nearest to 1.500
• n = 6 periods or 6 years
• Case 3: solve for i when knowing f = $4,000 and n = 9;
Have $2,001 and want $4,000 in 9 years.
• $4,000 / $2,001 = 1.9990
• Table B.2: row 9 find nearest value to 1.9990
• i = 8%
Learning Objective P2: Apply future value concepts to a single amount by using interest tables. © McGraw-Hill Education B-9
1 - 10

Present Value of an Annuity


• Annuity – series of equal payments occurring at equal
intervals.
• Ordinary annuity – equal end-of-period payments at
equal intervals.
• Can compute PV of ordinary annuity using Table B.1.
• Direct way use PV of annuity table – Table B.3.
• Example of using Table B.1 vs Table B.3:

© McGraw-Hill Education B-10


Learning Objective P3: Apply present value concepts to an annuity by using interest tables.
1 - 11

Future Value of an Annuity


• Can compute FV of ordinary annuity using Table B.2.
• Direct way use FV of annuity table – Table B.4.
• Example of using Table B.2 vs Table B.4:

© McGraw-Hill Education B-11


Learning Objective P4: Apply future value concepts to an annuity by using interest tables.
Table B.1 Present Value of 1

© McGraw-Hill Education B-12


Table B.2 Future Value of 1

© McGraw-Hill Education B-13


Table B.3 Present Value of an Annuity of 1

© McGraw-Hill Education B-14


Table B.4 Future Value of an Annuity of 1

© McGraw-Hill Education B-15

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