A

opening a rd
14-Sep
2011
0

14-Sep
2012
1
-10000

14-Sep
2013
2
-10000

14-Sep
2011
0
-10000

14-Sep
2012
1
-10000

14-Sep
2016
5
-10000
?
future value of an annuity

final amount is
10000*1.1^4
plus
10000*1.1^3
plus
10000*1.1^2
plus
10000*1.1^1
plus
10000

14-Sep
2014
3
-10000

10%
14-Sep
2015
4
-10000

14641
13310
12100
11000
10000
61051

14-Sep
2013
2
-10000

14-Sep
2014
3
-10000

annuity
1
2
3
4

14-Sep
2015
4
-10000

14-Sep
2016
5
?

final amount is
10000*1.1^5
10000*1.1^4
10000*1.1^3
10000*1.1^2
10000*1.1^1

future value of an annuity due

16105.1
14641
13310
12100
11000
67156.1

we will get a bonus from our employer after 3 yrs of Rs. 5000000
if the applicable interest rate is 10%, what is it worth today?
0

3
500000

?
pesent value
500000/1.1^3
375657.4

company will pay you special allowance of Rs. 100000 every year for 3 years
starting one year from now. What is its worth today?
0

100000
100000
?
present value of an annuity
100000/1.1^1
90909.09
plus
100000/1.1^2
82644.63
plus
100000/1.1^3
75131.48
248685.2

100000

company decides that they will pay special allowance straightaway

that is, 100000 today, 100000 after 1 year and 10000 after 2 years.
what is it worth today?
0
100000

1
100000

2
100000

3
100000

plus
plus

100000
100000/1.1^1
100000/1.1^2

100000
90909.09
82644.63
273553.7

present of an annuity due

1 value in the future of a money invested for a period of time
FUTURE VALUE
this is called compounding
2 value today of something to be received later
PRESENT VALUE
this is called discounting
3 the higher the interest the higher the FV for the same period
4 the longer the period the greater the FV for the same interest
5 the longer the period the smaller the PV for same interest
6 the higher the interest rate the lower the PV for the same period
7 period payment are called annuities
the FV of regular annuity is less than the FV of annuity due
8 PV of a regular annuity is less than PV of annuity due
1 I deposit Rs. 52500 today in SBI for 5 yrs at interest rate of 10.5%
what do I get after 5 yrs?

52500*1.105^5
86490.96
2 your friend will give you Rs. 85000 after 7 yrs. If the interest rate is 8%
what is it worth today?
3 I open a yearly RD paying Rs. 5000 every year starting today for 8 yrs.
What will I get after 8 years if interest rate is 11%?
0
1
2
3
-5000
-5000
-5000
-5000
5000*1.11^8
5000*1.11^7
5000*1.11^6
5000*1.11^5
5000*1.11^4
5000*1.11^3
5000*1.11^2
5000*1.11^1

4
-5000

11522.69
10380.8
9352.073
8425.291
7590.352
6838.155
6160.5
5550
65819.86

4 if your rich aunt says she will pay you Rs. 25000 every year for the next
9 yrs, what is it worth today if interest rate is 12%?
0

1
25000
25000/1.12^1
25000/1.12^2
25000/1.12^3
25000/1.12^4
25000/1.12^5
25000/1.12^6
25000/1.12^7
25000/1.12^8
25000/1.12^9

2
25000

3
25000
22321.43
19929.85
17794.51
15887.95
14185.67
12665.78
11308.73
10097.08
9015.251
133206.2

4
25000

5
25000

e of an annuity

peridic payment
equal payment
defined number of periods
need not be annual

future value of an annuity due

5
-5000

6
-5000

7
-5000

8
-5000

6
25000

7
25000

8
25000

9
25000

1 I deposit rs 100000 for 3 yrs at 10% interest

Rs. 13,310.00
2 deposit amount
period is
interest rate

1555
15 yrs
9.80%

Rs. 63,207.05
3 we will get a bonus from our employer after 3 yrs of Rs. 5000000
if the applicable interest rate is 10%, what is it worth today?
0

3
500000

?
Rs. 37,565.74
4 I will get Rs 2000000
interest is 8.6%

after 11 yrs
find value today

Rs. 807,052.74
5 opening a rd
14-Sep
2011
0

14-Sep
2012
1
-10000

14-Sep
2013
2
-10000

14-Sep
2014
3
-10000

10%
14-Sep
2015
4
-10000

14-Sep
2016
5
-10000

Rs. 61,051.00
6 I deposit Rs. 100 every month for 12 yrs. Starting next month.
rate of interest is 14% per annum.
what will I get after 12 yrs?

Rs. 36,973.99
7 suppose you make your first deposit today.
Rs. 37,405.35
8 company will pay you special allowance of Rs. 100000 every year for 3 years
starting one year from now. What is its worth today?
0

Rs. 248,685.20

1
100000

2
100000

3
100000

0
100000

1
100000
Rs. 273,553.72

2
100000

pg 95

problem 2.1

Rs. 530.00

Rs. 561.80

Rs. 471.70

Rs. 445.00

Rs. 895.42

Rs. 1,552.92

Rs. 279.20

Rs. 499.99

problem 2.2

problem 2.8
a

Rs. 881.17

Rs. 895.42

Rs. 903.06

Rs. 908.35
problem 2.9

Rs. 279.20

Rs. 276.84

Rs. 443.72
problem 2.10

Rs. 5,272.32

Rs. 5,374.07

this occurs because of greater number of compoundings that

the amounts go through
problem 2.4

regualar annuity
Rs. 6,374.97

annuity due
Rs. 7,012.47

Rs. 1,105.13

Rs. 1,160.38

Rs. 2,000.00

Rs. 2,000.00
problem 2.5

Rs. 2,457.83

Rs. 2,703.61

Rs. 865.90

Rs. 909.19

Rs. 2,000.00

Rs. 2,000.00
problem 2.3

deposit is
1000 interest is 12%
what will I get after 1 year
it is 12% semiannual
quarterly
monthly
weekly
daily

annual

final amount
Rs. 1,120.00
Rs. 1,123.60
Rs. 1,125.51
Rs. 1,126.83
Rs. 1,127.33
Rs. 1,127.47

effective
1.12-1

cf 21/9/11
rs 5000
invested
compounding

for 1 year 15% interest

amount
Rs 5750.00
Rs 5778.13
Rs 5793.25
Rs 5803.77
Rs 5808.99

annual
semi annual
quarterly
monthly
daily

effective rate
15.00%
15.56%
15.87%
16.08%
16.18%

I deposit
300
I get
4850 after 2 yrs
what interest rate did I get?
27.15% use rate formula

problem 2.7

7.00%
7.00%
9.00%
15.00%

2.14 spending 4 million you get

the annualised growth rate is

8 million in 10 yrs
7.18%

2.13 6 million has become 12 million in 5 yrs

the annual compounded growth rate is
14.87%
we are calculating the annualised growth rate- which
is the compounded rate and not the simple rate
if it were the simple rate then dividing by 100% growth by
5 yrs would have given us the answer

you buy a car

11% interest
5 yrs
270570.3

10 lakhs

year
1
2
3
4
5

op bal loan interest

inst paid principal repay
cl bal of loan
1000000
110000 270570.3 160570.3

you take a personal loan of Rs 500000

for 12% interest for 5yrs
draw up an amortization schedule if u have to repay in equal instalments
year

op bal loan interest

1
500000 6000000
2 421295.13 50555.42
3
4
5

inst paid principal repay

cl bal of loan
138704.87 78704.87 421295.13
138704.87 88149.45
138704.87
138704.87
138704.87

30 lakh house

I want to put aside some amount equally every year for the next 10 yrs
interest
8%
how much should I put aside?
2.16
yr.0

1
10000

2
10000

3
10000

4
10000

?
rs 33872.11
the schedule will look like this
op bal
interest got withdrawn cl bal