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Time Value of Money
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Value of Money received today is more than value of money received after one ,two
or three years
Money received today is costlier than money received tomorrow.
If a person is given option of receiving $10,000 today or receiving it after 2 years;
which option is more attractive and why? Obviously, everyone will prefer $10,000
today and that is time value of money.
Concepts Covered:
 Compounding Technique
 Discounting Technique
 Annuities
The Time Value of Money – A Dollar Received Today Is Worth More Than a Dollar
Received in The Future.

Why is TIME such an important element in your decision?

1.1 Compounding
Formula for Compounding:
Vn =Vo (1 + i)n
Using Future Value / Compound Vale tables:
Vn =Vo (FVIF I, n)

Q1. If $100 is invested at compound interest rate of 10% for 1 year, what will be
maturity amount?
Q2. If $10000 is invested at compound interest rate of 10% for 2 years, what will
be maturity amount?
Q3. If $ 100 is invested at 10% compound interest for 10 years, what will be
maturity amount?

1.2 Rule of 72 and rule of 69 are easy formulas for calculating time required
to double the investment at a given interest rate.
Rule of 72:
Doubling Period = 72 / Rate of interest.
Rule of 69:
Doubling Period = 0.35 + 69 / Rate of interest.
Q4. If a sum is invested at 10% per year, How much time will it take to double the
investment?
Q5. If you deposit $ 5,000 today at 6% rate of interest in how many years will this
amount double? Work out this problem using Rule of 72 and Rule of 69.

1.3 Multiple Compounding Periods:

Vn =Vo (1 + i /m)(n X m)
Q6. Calculate the compound value of $ 10,000 at the end of 3 year at 12% rate of
interest when interest is calculated on A) Yearly Basis B) Quarterly Basis.
1.4 Effective Rate of interest in case of Multi Period Compounding:
EIR = (1+i/m)m-1
Q7. A company offers 12% rate of interest on deposits. What is the effective rate
of interest if the compounding is done (i) Half Yearly (ii) Quarterly (iii) Monthly.
© Dr. Ashutosh Kolte, PUMBA, SPPU
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Q8. Calculate the future value at the end of five years of the following series of
payments at 10% rate of interest:
R1 = $1000 at the end of the 1st year
R2 = $2000 at the end of the 2nd year
R3 = $3000 at the end of the 3rd year
R4 = $2000 at the end of the 4th year
R5 = $1500 at the end of the 5th year
Annuity:
Regular Annuity or Deferred Annuity (Cash Flows occur at the end of each
period)
Annuity Due (If the Cash Flow occurs at the beginning of each period)

1.5 Compounded Value of an Annuity:

Vn=R (FVIFAi,n)
Q9. Mr. A deposits $ 1000 at the end of the year for 4 years and the deposit earns
a compound interest @ 10% per annum. Determine how much money he will have at
the end of 4 years
1.6 Compounded Value of an Annuity Due:
Vn=R (FVIFAi,n) (1+i)
Q10. Mr. X deposits $ 5000 at the beginning of each year for 5 years in a bank and
the deposit earns a compound interest @ 8% p.a. Determine how much money he
will have at the end of 5 years?

2.1 Present Values or Discounting:

DF (Discount Factor) = 1/(1+i)n

PV (Present Value)= FVn /(1+i)n

PV (Present Value)= FVn (PVIFi,n)
Q11. Calculate present value of $ 1000 to be received after one year at 10% time
preference rate.
Q12. Mr. X is to receive $ 5000 after 5 years from now. His time preference for
money (rate of interest) is 10% per annum. Calculate its present value using
discount factor tables.
Q13. Calculate present value of Following Cash flows assuming a discount rate of
10%:
Year Cash Flows in $
1. 5000
2. 10,000
3. 10.000
4. 3,000
5. 2,000

2.2 Present Value of an Annuity:

PV (Present Value)= R(PVIFAi,n)
R = annual equal cash flows
Q14. Mr. X has to receive $ 2,000 per year for 5 years Calculate the present value
of the annuity assuming that he can earn interest on his investment at 10%.

2.3 Present Value of an Annuity Due:

PV (Present Value)= R(PVIFAi,n) (1+i)
Q15. Mr.A has to receive $ 1000 at the beginning of each year for 5 years
Calculate the present value of the annuity due assuming 10% rate of interest.

© Dr. Ashutosh Kolte, PUMBA, SPPU

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2.4 Present Value of Infinite Life Annuity:

PV = R/i
Q16. Calculate the present value of $ 1000 received in perpetuity for an infinite
period, taking discount rate of 10%.
Q17. Mr. Tie Xu has rented out a portion of his mansion for 4 years at an annual
rent of $ 6,000 with the stipulation that the rent will increase by 10 % every year. If
the required rate of return is 15%, what is the present value of the Expected Series
of Rent?

Sinking Fund Problems:

Q18. A company has $.200,000, 6% debentures outstanding today. The company
has to redeem the debentures after 5 years and establishes a sinking fund to
provide funds for redemption. Sinking fund investments earn 10 % p.a. the
investments are made at the end of each year. What annual payment must the firm
make to ensure that the needed $.200,000 is available on the designated date?

Capital Recovery Problems:

Q19. A company has raised a loan of $ 500,000 from a financial institution at 8%
p.a. rate of interest. The amount has to be paid back in 5 equal annual installments.
What shall be the size of installment?

Compound Growth Rate Problems:

Q20. A company offers to pay you annually $ 4007 for 5 years if you deposit 16,000
with the company. What interest rate do you earn on deposits?

Practical Applications / Use of Time Value of Money:

1) Sinking Fund Problems
2) Capital Recovery Problems
3) Compound Growth Rate Problems
4) Valuation of Securities
5) Banks
6) Capital Budgeting
7) Business Decisions

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© Dr. Ashutosh Kolte, PUMBA, SPPU

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Practice Problems
On
Basic Mathematics of Finance

A. A company has issued debentures of Rs. 50 lacs to be repaid after 7 years.

How much should a company invest in sinking fund earning 12% in order to be able
to repay debentures?
B. What is the present worth of operating expenditures of Rs. 1,00,000 per year
which are assumed to be incurred continuously throughout in 8 year period if the
effective annual rate of interest is 12%.
C. A firm purchases a machine for Rs. 8,00,000 by making a down payment of
Rs. 1,50,000 and remainder in equal installments of Rs. 1,50,000 for 6 years. What
is the rate of interest to the firm?
D. Mr. X borrows Rs. 1,00,000 at 8 % compounded annually. Equal annual
payments are to be made for 6 years. However, at the time of the fourth payment,
the individual elects to pay off the loan. How much should be paid?
E. Ten year from now Mr. X will start receiving a pension of Rs. 3,000 a year.
The payment will continue for 16 years. How much is the pension worth now, if his
interest rate is 10%.
F. Novelty Industries is establishing a sinking fund to redeem Rs. 50,00,000
bond issue which matures in 15 years. How much do they have to put into the fund
at the end of each year to accumulate the Rs. 50,00,000, assuming the funds are
compounded at 7% annually?
G. XYZ Ltd. Is creating a sinking fund to redeem its preference share capital of
Rs. 5,00,000 issued on 1-1-2006 and maturing on 31-12-2017. The annual payments
will start on 1-1-2006. The company wants to invest equal amount every year, which
will earn 12% p.a. How much is the amount of sinking fund annuity?
H. A company offered a contract which has the following terms: An immediate
cash outlay of Rs. 15,000 following a cash inflow of Rs. 17,900 after 3 years. What is
the company’s rate of return on this contract?
I. A 4 year annuity of Rs. 3,000 per year is deposited in a bank account that
pays 9% interest compounded yearly. The annuity payments begin in year 12 from
now. What is the FV of the annuity?
J. A student is awarded a scholarship and two options are placed before him (i)
to receive Rs. 1,100 now or (ii) receive 100 p.m. at the end of each of next 12
months. Which option be chosen if rate of interest is 12%?
K. Find out the present value of an investment which is expected to give a return
of Rs. 2500 p.a. indefinitely and the rate of interest is 12% p.a.

© Dr. Ashutosh Kolte, PUMBA, SPPU

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L. A Finance company makes an offer to deposit a sum of Rs. 1,100 and then
receive a return of Rs. 80 p.a. perpetually. Should this offer be accepted if the rate of
interest is 8 %? Will the decision change if the rate of interest is 5%?
M. If a person opens a recurring deposit account for a period of 10 years earning
12% interest and accepts the scheme under the condition that for the 1st year deposit
is Rs. 3150 and for subsequent years the deposit amount will increase by 5% every
year. What is the PV of this scheme?
N. Rs. 1,000 is deposited into an interest-bearing account that pays 10% interest
compounded yearly. The investor’s goal is Rs. 1,500. How many years must the
principal earn compound interest before the desired amount is realized?
O. A loan of Rs. 50,000 is to be repaid in equal annual installments of Rs.
14,000. The loan carries a 6% interest rate. How many payments are required to
repay this loan?
P. A machine costsRs. 98,000 and its effective life is estimated at 12 years. If the
scrap value is Rs. 3,000, what should be retained out of profit at the end of each
year to accumulate at compound interest rate at 5% p.a., so that a new machine can
be purchased after 12 years?
Q. In setting up a educational fund, a person agrees to make five annual
payments of Rs. 5,000 each into a college fund program. The first payment is to be
made 12 years from now and the ‘college fund program’ wishes that upon making
the last payment, the amount available should have grown to Rs. 30,000. What
should be the minimum rate of return on this fund?
R. Assume that a deposit is to be made at year zero into an account that will
earn 6% compounded annually. It is desired to withdraw Rs. 5,000 three years from
now and Rs. 7,000 six years from now. What is the size of the year zero deposit that
will produce these future payments.
S. Assume that a Rs. 20,00,000 plant expansion is to be financed as follows: the
firm makes a 15% down payment and borrows the remainder at 9 % interest rate.
The loan is to be repaid in 8 equal installments beginning from 4 years from now.
What is the size of the required annual payments?
T. Mr. Sharma wants to be a millionaire. If Mr. Sharma has just turned 35 how
much would he have to invest at the end of each year in order to have $1 million on
his 65th birthday, assuming that he is able to get a return on investment of 10% per
year? How much would he have to invest if he made the investment at the end of
each month instead?
U. If Mr. Sharma gets his $1 million, how much could he afford to withdraw at the
end of each month through his 90th birthday that would leave him with a balance of
zero at that time?
V. How expensive a house can you afford to purchase if you have $23,000 for a
down payment and you can afford to pay $1,800 per month on a mortgage, if the

© Dr. Ashutosh Kolte, PUMBA, SPPU

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mortgage rate is 9% per annum with semi-annual compounding and a 20 year

amortization period? If you can afford $900 every two weeks instead, what is the
maximum you can pay for a house?
W. You are buying furniture for your house. The store is offering terms of no
payments or interest for one full year (the first payment is due in 365 days) and 2%
per month thereafter. What would be the monthly payments on a $5,000 purchase if
there were to be 24 equal payments? Would you be better off financing the
purchase on a line of credit that charged 18% per annum with no interest free
period?
X. You are paying $1,200 per month on a 25 year mortgage at 12% per annum
with monthly compounding. You have just made your 40th payment, how much of
that $1,200 was applied to the principal? What was the starting value of the
mortgage?
Y. A potential investor is considering the purchase of a bond that has the
following characteristics: the bond pays 8% per year on its Rs. 1,000 principal or
face value. The bond will mature in 20 years. At maturity, the bondholder will receive
interest for year 20 plus the Rs. 1,000 face value. What is the maximum purchase
price that should be paid for this bond if the investor requires a 10% rate of return?
Z. A 10 years savings annuity of Rs. 2,000 per year is beginning at the end of
current year. The payment of retirement annuity is to begin 16 years from now (the
first payment is to be received at the end of the year 16) and will continue to provide
a 20 year payment annuity. If this plan is arranged through a savings bank that pays
interest @ 7 % per year on the deposited funds, what is the size of the yearly
retirement annuity that will result?
AA. A company offers to refund an amount of Rs. 44,650 at the end of 5 years for
a deposit of Rs. 6,000 made annually. Find out the implicit rate of interest offered by
the company.
BB. An investor deposits a sum of Rs. 1,00,000 in a bank account on which
interest is credited @ 10 % p.a. How much amount can be withdrawn annually for a
period of 15 years?
CC. What is the minimum amount which a person should be ready to accept today
from a debtor who otherwise has to pay sum of Rs. 5,000 to day Rs. 6,000, Rs.
8,000 and Rs. 9,000 and Rs. 10,000 at the end of year 1,2,3,4 respectively from
today. The rate of interest may be taken at 14%.

© Dr. Ashutosh Kolte, PUMBA, SPPU

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FVIF(I,n) = (1 + i)n
Future value interest factor of $1 per period at i% for n periods, FVIF(i,n).
Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 1.010 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 1.100 1.110 1.120 1.130 1.140 1.150 1.160 1.170 1.180 1.190 1.200
2 1.020 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.188 1.210 1.232 1.254 1.277 1.300 1.323 1.346 1.369 1.392 1.416 1.440
3 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.331 1.368 1.405 1.443 1.482 1.521 1.561 1.602 1.643 1.685 1.728
4 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1.464 1.518 1.574 1.630 1.689 1.749 1.811 1.874 1.939 2.005 2.074
5 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611 1.685 1.762 1.842 1.925 2.011 2.100 2.192 2.288 2.386 2.488
6 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 1.772 1.870 1.974 2.082 2.195 2.313 2.436 2.565 2.700 2.840 2.986
7 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.949 2.076 2.211 2.353 2.502 2.660 2.826 3.001 3.185 3.379 3.583
8 1.083 1.172 1.267 1.369 1.477 1.594 1.718 1.851 1.993 2.144 2.305 2.476 2.658 2.853 3.059 3.278 3.511 3.759 4.021 4.300
9 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358 2.558 2.773 3.004 3.252 3.518 3.803 4.108 4.435 4.785 5.160
10 1.105 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 2.594 2.839 3.106 3.395 3.707 4.046 4.411 4.807 5.234 5.695 6.192
11 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853 3.152 3.479 3.836 4.226 4.652 5.117 5.624 6.176 6.777 7.430
12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 3.138 3.498 3.896 4.335 4.818 5.350 5.936 6.580 7.288 8.064 8.916
13 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 3.883 4.363 4.898 5.492 6.153 6.886 7.699 8.599 9.596 10.699
14 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.797 4.310 4.887 5.535 6.261 7.076 7.988 9.007 10.147 11.420 12.839
15 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 4.785 5.474 6.254 7.138 8.137 9.266 10.539 11.974 13.590 15.407
16 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595 5.311 6.130 7.067 8.137 9.358 10.748 12.330 14.129 16.172 18.488
17 1.184 1.400 1.653 1.948 2.292 2.693 3.159 3.700 4.328 5.054 5.895 6.866 7.986 9.276 10.761 12.468 14.426 16.672 19.244 22.186
18 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560 6.544 7.690 9.024 10.575 12.375 14.463 16.879 19.673 22.901 26.623
19 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116 7.263 8.613 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948
20 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 6.727 8.062 9.646 11.523 13.743 16.367 19.461 23.106 27.393 32.429 38.338

© Dr. Ashutosh Kolte, PUMBA, SPPU

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FVIFA(i,n) = [ ( 1 + i )n –1 ] / i

Future value interest factor of an ordinary annuity of $1 per period at i% for n periods, FVIFA(i,n).
Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
2 2.010 2.020 2.030 2.040 2.050 2.060 2.070 2.080 2.090 2.100 2.110 2.120 2.130 2.140 2.150 2.160 2.170 2.180 2.190 2.200
3 3.030 3.060 3.091 3.122 3.153 3.184 3.215 3.246 3.278 3.310 3.342 3.374 3.407 3.440 3.473 3.506 3.539 3.572 3.606 3.640
4 4.060 4.122 4.184 4.246 4.310 4.375 4.440 4.506 4.573 4.641 4.710 4.779 4.850 4.921 4.993 5.066 5.141 5.215 5.291 5.368
5 5.101 5.204 5.309 5.416 5.526 5.637 5.751 5.867 5.985 6.105 6.228 6.353 6.480 6.610 6.742 6.877 7.014 7.154 7.297 7.442
6 6.152 6.308 6.468 6.633 6.802 6.975 7.153 7.336 7.523 7.716 7.913 8.115 8.323 8.536 8.754 8.977 9.207 9.442 9.683 9.930
7 7.214 7.434 7.662 7.898 8.142 8.394 8.654 8.923 9.200 9.487 9.783 10.089 10.405 10.730 11.067 11.414 11.772 12.142 12.523 12.916
8 8.286 8.583 8.892 9.214 9.549 9.897 10.260 10.637 11.028 11.436 11.859 12.300 12.757 13.233 13.727 14.240 14.773 15.327 15.902 16.499
9 9.369 9.755 10.159 10.583 11.027 11.491 11.978 12.488 13.021 13.579 14.164 14.776 15.416 16.085 16.786 17.519 18.285 19.086 19.923 20.799
10 10.462 10.950 11.464 12.006 12.578 13.181 13.816 14.487 15.193 15.937 16.722 17.549 18.420 19.337 20.304 21.321 22.393 23.521 24.709 25.959
11 11.567 12.169 12.808 13.486 14.207 14.972 15.784 16.645 17.560 18.531 19.561 20.655 21.814 23.045 24.349 25.733 27.200 28.755 30.404 32.150
12 12.683 13.412 14.192 15.026 15.917 16.870 17.888 18.977 20.141 21.384 22.713 24.133 25.650 27.271 29.002 30.850 32.824 34.931 37.180 39.581
13 13.809 14.680 15.618 16.627 17.713 18.882 20.141 21.495 22.953 24.523 26.212 28.029 29.985 32.089 34.352 36.786 39.404 42.219 45.244 48.497
14 14.947 15.974 17.086 18.292 19.599 21.015 22.550 24.215 26.019 27.975 30.095 32.393 34.883 37.581 40.505 43.672 47.103 50.818 54.841 59.196
15 16.097 17.293 18.599 20.024 21.579 23.276 25.129 27.152 29.361 31.772 34.405 37.280 40.417 43.842 47.580 51.660 56.110 60.965 66.261 72.035
16 17.258 18.639 20.157 21.825 23.657 25.673 27.888 30.324 33.003 35.950 39.190 42.753 46.672 50.980 55.717 60.925 66.649 72.939 79.850 87.442
17 18.430 20.012 21.762 23.698 25.840 28.213 30.840 33.750 36.974 40.545 44.501 48.884 53.739 59.118 65.075 71.673 78.979 87.068 96.022 105.93
18 19.615 21.412 23.414 25.645 28.132 30.906 33.999 37.450 41.301 45.599 50.396 55.750 61.725 68.394 75.836 84.141 93.406 103.74 115.27 128.12
19 20.811 22.841 25.117 27.671 30.539 33.760 37.379 41.446 46.018 51.159 56.939 63.440 70.749 78.969 88.212 98.603 110.28 123.41 138.17 154.74
20 22.019 24.297 26.870 29.778 33.066 36.786 40.995 45.762 51.160 57.275 64.203 72.052 80.947 91.025 102.44 115.38 130.03 146.63 165.42 186.69
25 28.243 32.030 36.459 41.646 47.727 54.865 63.249 73.106 84.701 98.347 114.41 133.33 155.62 181.87 212.79 249.21 292.10 342.60 402.04 471.98
30 34.785 40.568 47.575 56.085 66.439 79.058 94.461 113.28 136.31 164.49 199.02 241.33 293.20 356.79 434.75 530.31 647.44 790.95 966.71 1,181.9
35 41.660 49.994 60.462 73.652 90.320 111.43 138.24 172.32 215.71 271.02 341.59 431.66 546.68 693.57 881.17 1,120.7 1,426.5 1,816.7 2,314.2 2,948.3
40 48.886 60.402 75.401 95.026 120.80 154.76 199.64 259.06 337.88 442.59 581.83 767.09 1,013.7 1,342.0 1,779.1 2,360.8 3,134.5 4,163.2 5,529.8 7,343.9
50 64.463 84.579 112.80 152.67 209.35 290.34 406.53 573.77 815.08 1,163.9 1,668.8 2,400.0 3,459.5 4,994.5 7,217.7 10,436 15,090 21,813 31,515 45,497

© Dr. Ashutosh Kolte, PUMBA, SPPU

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PVIF(i,n) = 1 / (1 + i)n

Present value interest factor of $1 per period at i% for n periods, PVIF(i,n).

Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847
2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718
3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437
6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370
7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314
8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266
9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225
10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191
11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162
12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137
13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116
14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099
15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084
16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071
17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060
18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051
19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043
20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037
25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016
30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012 0.009 0.007
35 0.706 0.500 0.355 0.253 0.181 0.130 0.094 0.068 0.049 0.036 0.026 0.019 0.014 0.010 0.008 0.006 0.004 0.003
40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001
50 0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.009 0.005 0.003 0.002 0.001 0.001 0.001 0.000 0.000

© Dr. Ashutosh Kolte, PUMBA, SPPU

 10

PVIFA(i,n) = [ 1 – ( 1 + i )-n ] / i

Present value interest factor of an (ordinary) annuity of $1 per period at i% for n periods, PVIFA(i,n).
Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812
19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870
25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948
30 25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979
35 29.409 24.999 21.487 18.665 16.374 14.498 12.948 11.655 10.567 9.644 8.855 8.176 7.586 7.070 6.617 6.215 5.858 5.539 5.251 4.992
40 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997
50 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 9.042 8.304 7.675 7.133 6.661 6.246 5.880 5.554 5.262 4.999

© Dr. Ashutosh Kolte, PUMBA, SPPU

 11

Basic Mathematics for Finance: Time Value of Money

(Solutions / Answers):
Q1. Vn =Vo (FVIF I, n)
Vn = 100 ( 1.11) = $ 110.
Q6. When interest is computed on yearly basis: Vn = $ 14050
When interest is compounded on quarterly basis: Vn = $ 14,260
Q7.
(i) 12.36 %
(ii) 12.55 %
(iii) 12.68 %
Q8. Total Present Value = $ 11,456
Q9. Vn = $ 4641.
Q10. Vn = $ 31,681.
Q11. $ 909
Q12. $ 3405
Q13. $ 23,606
Q14. $ 7582
Q15. $4170
Q16. $ 10,000
Q17. $ 19,555
Q18.
Vn=R (AFVIFi,n)
Therefore,
R =Vn / (AFVIFi,n)
R = 2,00,000 / 6105 = $ 32,760.03
Q19.
PV (Present Value)= R(APVIFi,n)
R=PV (Present Value)/(APVIFi,n)
R = 500,000 / 3.993 = $ 125219.13
Q20.
PV (Present Value)= R(APVIFi,n)
1600 = 4007 (APVIFi,n)
Therefore, APVIF = 3.99301, and after looking at APVIF table i = 8%.

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Answers to Practice Problems on Basic Mathematics of Finance:
A: Rs. 4,95,589
B: Rs. 4,96,800
C: 10%
D: Rs. 60,260
E: Rs. 9952
F: Rs. 1,98,973
G. Rs. 18500 p.a.
H: 6%
I: Rs. 13719
J: Option – (ii)
K: Rs. 20,833.33
L: PV is Rs. 1000 and Rs. 1600 respectively at 8% & 5%.
n
M: Using formula: PV = CF1 /(r-g) X {1-[(1+g)/(1+r)]^ } answer is Rs. 21,510.
N: 5 years
O: 4 instalments of Rs. 14,000 each and last instalment of Rs. 1992 comprising of interest of Rs. 113
and principal repayment of Rs. 1,879.
P.: Rs. 5968
Q: between 9 % to 10 %
R: Rs. 8380.
S: Rs. 3,97,750.
Y: Rs. 681.12 +149 = Rs. 830.12.
Z: Annuity Amount = Rs. 3659.
AA: 20%
BB: Rs. 13148.
CC: Minimum acceptable amount is Rs. 28,409.
© Dr. Ashutosh Kolte, PUMBA, SPPU