# Calculation of present value - Finance Time Value of money

Document Sample

```					              Sub: Finance                                                               Topic: Time value of money

Question:
Calculation of present value and payment of the amount.

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1. Find the value of an annuity in which \$1,100 is deposited at the end of each year for 5 years,
at an interest rate of 11.5% compounded annually.

2. Determine the amount of each payment to be made to a sinking fund in order to pay off a
\$12,000 loan in 8 1/2 years when the funds earn interest at a rate of 10% compounded semi
annually.

3. Find the present value of an ordinary annuity with annual payments of \$1,000, for 6 years, at
10% interest compounded annually.

Solution:

Present value =            1-(1+.115) ^-n         *pmt = \$1,100* 1-(1.115) ^-10                         = \$6,344.55

I                                                   0.115

PMT (0.05, 17, 0, 12000, 0) = \$464.39 mathematically PMT = i * PV/ (1-(1+i)^-n

Present value =          1-(1+i) ^-n     *pmt = \$1,000* 1-(1.1) ^-6                     = \$ 4355.2607

I                                    0.10

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