Chapter Four: The Time Value of Money

Introduction
The concept of time value of money enables you to determine the value of a project or
investment based on future cash flows. Future cash flows are not determined with certainty
rather there could be variability which is referred to as risk. Considering time value of money
adjusts the value of money. One Birr today is not equal to one Birr you are going to obtain
tomorrow. The extent of the risk will affect the level of the required return on the investment.
Investments are valued based on the required rate of return.

The meaning/concept of TVM

Understanding the concept of time value of money helps you to record business transactions
properly as well as to make financial analysis and take business decisions. The time value
concept is applicable not only in business decisions but also for making personal financial
decisions such as saving plan or accumulation of money to acquire fixed asset or make
investments in profitable businesses. When you come to business, every investment decision
and financing decision accounts the concept of time value of money.

The time value of money is a technique for comparing investments made in today’s dollars with
payoffs in future dollars. It is a critical consideration in financial and investment decisions. The
time value of money has applications to compound interest, mortgage, leases, and investments.
The money you will get after a year does not hold the same value with the same money you are
holding it now.

Reasons of time preference of money:

Most individuals value the opportunity to receive money now higher than waiting for one or
more years to receive the same amount. Three reasons for this are
Risk
Preference for consumption
Investment opportunities
Risk:- we live under risk or uncertainty. As an individual is not certain about future cash
receipts, he prefers receiving cash now.

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Preference for consumption: most people have subjective preference for present consumption
over future consumption of goods and services either because of the urgency of their present
wants or because of the risk of not being in a position to enjoy future consumption that may be
caused by illness or death, or because of inflation.
Investment Opportunities: - Most individuals prefer cash to day to future cash because of the
available investment opportunities to which they can put present cash to earn additional cash.

The phrase time value of money refers to the fact that a Birr in hand today is worth more than a
Birr promised at some time in the future. One Birr today is worth more than one Birr a year from
now. Because money today can be invested and earn interest. “A Birr today is worth more than a
Birr tomorrow”. One reason for this is that one could earn interest while s/he waited. So a Birr
today would grow to more than a Birr later.
 Principal:- The amount borrowed by A from B is called principal.
 Amount :( Total Amount):- the sum of the interest and principal is usually called the
amount.
 Interest: When A borrows money from B, then A has to pay certain amount to B for the
use of the money. The amount paid by A is called Interest. The difference in value is
stated in the form of interest. Interest is the money paid or earned for the use of money

 Interest may be:

1. Interest on interest
 Is interest earned on the reinvestment of previous interest earned
2. Compound (Total) interest
 Is interest on both the initial principal & interest reinvested from prior periods
3. Simple interest
 Interest earned only on the original principal amount invested
 When money is put out at simple interest, the interest is payable for each year,
but is not added to the principal.

2
Example1: Suppose you identified a two-year investment that pays 10% per year. If you
invest Br. 1000 today,
a. How much will you have at the end of the two years?
End of year 1 Amount = 1000 x 1.10 = 1100
End of Year 2 amount = 1100 x 1.10 = 1210

b. How much is compound interest?

Compound interest = 1210 – 1000 = 210

c. How much interest is earned on interest?

= Year 1 interest x 10%
= 100 x 10% = 10
d. How much is simple interest?
= Compound interest – interest on interest
= 210 – 10 = 200
Example 2. Mamush has placed birr 500 in an employees’ savings account that pays 8%
simple interest. How long will it be, in months, until the investment amount to birr 530?
Fv= P (1+nr)
530 =500(1+nx8%)
530= 500(1+0.08n)
n=0.75 Years
N= 0.75x12 months
= 9 month
Example 3. At what annual rate of simple interest will an investment of birr 1000 for 2
years grow to the amount of birr 1100?
F= p (1+nr)
1100= 1000 (1+2r) r=5%
Example4 . Find the future value if birr 20, 000 is borrowed at 6 percent simple interest
for 3 months.
Here, 3 months is 3/12 = 1/4 of a year, so n = 1/4
Hence, Fv = p+pnr

3
 =20,000 + 20,000 (3/12x 6%)
= 20,000+300 = birr 20,300

The time value of money techniques

Time Value of Money analysis involves:
 What is Birr 1 worth 10 years from today (Future Value)?
 What is Birr 1 to be received in 10 years’ worth today (Present Value)?
Importance of present and future value concepts can be manifested in different areas. These
values of present and future cash flows influence your investment and related decisions.
such as in:
 Determining the present value of promissory notes issued or received, and making proper
accounting record.
 Making buy or lease decisions such as fixed assets.
 Amortization of premiums and discounts on long term liabilities.
 Computing pensions and other post-retirement benefits.
 Determining the value of long-term productive assets acquired by issuing long-term debt
securities.
 Providing sinking funds for long-term debt.
 Installment contracts and others.
Generally there are two commonly used techniques to apply the TVM in financial decisions: the
Future value and Present values.

Future Value Techniques (Compounding)

Future value (FV) is the amount to which a cash flow or cash flows will grow over a given
period of time when compounded at a given interest rate. Future value is always a direct result of
the compounding process. Compounding refers to the process of accumulating interest on
investment over time to earn more interest. Compounding is a mathematical process of
determining the value of a cash flow or cash flows at the final period.
Future value (FV) refers to the amount of money an investment will grow to over some period of
time at some given interest rate. In other words, future value is the cash value of an investment at
some time in the future. The today’s value is referred to as principal. The amount by which the money
will grow is referred to as interest.

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  Future value computation may include:
 Future value of a single amount(cash flow)
 Future value of Annuities
 Future value of series of unequal amount

1. Future Value of a Single Amount

This is the amount to which a specified single cash flow will grow over a given period of time
when compounded at a given interest rate. The formula for computing future value of a single
cash flow is given as:

FVn = PV (1 + i)n
Where:
FVn = Future value at the end of n periods
PV = Present Value, or the principal amount
i = Interest rate per period
n= Number of periods
Or
FVn = PV (FVIFi,n)
Where:
(FVIFi, n) = The future value interest factor for i and n
Example : If you deposited birr 10,000 in NIB bank which was paying a 6%
rate of interest compounded annually on a ten year time deposit, how much
would the deposit grow at the end of ten years?
Fv = P (1+) n
= 10000(1.06)10
= 10000(1.7908)

=Birr 17,908.48

Example
If Sara deposited birr 10,000 in Awash Bank which was paying a 6
percent rate of interest compounded semi- annually, on a ten year time
deposit, How much would the deposit grow at the end of ten years?
I=6%/2= 3%, since it is compounded semiannually,
n= 10x2 =20

5
Fv= p (1ti) n
= 10,000 (1.03)20
= 10,000(1.8061)
=birr 18,061.11

Example
If Fekadu deposited birr 8,000 in Dashen Bank which was paying a 4% rate of
interest compounded quarterly on an 8 year time deposit ,how much the
deposit grow at the end of 8 years?
Fn =10,999.53

Example
At 8% compounded annually, how many years will it take for birr 2,000 to grow
to birr 3,000
F= p(l+i)n
3000=2000(1.08) n
n
3000 =1.08
2000
1.5 =1.08n
log 1.5 = log 1.08n
log 1.5=n log 1.08
n= log1.5
log1.08
n=0.17609 F n=5.27
0.03342
Example . If Ato Gebru Tsehayneh deposited birr 11,000 in commercial Bank
of Ethiopia at i, rate of interest compounded annually, on a 5 years time
deposit, the deposit would be birr 14,720.48. Find the interest rate?
Fv = p (l+i) n
14720.48= 11,000(l+i)5
14720.48 = (l+i) 5

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 11,000
1.338225 =(l+i)5
(1.338225)1/5= (l+i)
=1.05999= l+i
=1.05999-1
i=6%
Example
Find the rate of interest that, compounded annually, will result in tripling a
sum of money in 10 years.
Solution i=11.61%

Compound interest calculations are needed to determine future sums of money resulting from
an investment. Discounting, or the calculation of present value, which is inversely related to
compounding, is used to evaluate future cash flow associated with capital budgeting projects.
The concept of time value of money helps in arriving at the comparable value of the different
dollar amount arising at different points of time into equivalent values of a particular point of
time, present or future. The cash flows arising at different points of time can be made
comparable by using any one of the following:
 By compounding the present money to a future date i.e. by finding out the value of present
money.
 By discounting the future money to present date i.e. by finding out the present value (PV)
of future money.

2. Future value of annuity

What is an annuity?
An annuity is a series of equal periodic rents (receipts, payments, withdrawals, and deposits)
made at fixed intervals for a specified number of periods. An annuity is a series of cash flows
that are equal in size and occur over equally spaced points in time. It is a series of fixed payment
(or receipt) in which each payment is made at the end / beginning of the period. For a series of
cash flows to be an annuity four conditions should be fulfilled.
 First, the cash flows must be equal.
 Second, the interval between any two cash flows must be fixed.

7
  Third, the interest rate applied for each period must be constant.
 Last but not least, interest should be compounded during each period.
If any one of these conditions is missing, the cash flows cannot be an annuity.

The future value of an annuity addresses the question of how much will accumulate if a set
amount is paid into a fund for a number of years. Think of this as a “saving for retirement,”
“saving for a boat,” “saving for the children’s college,” kind of problem.

Basically, there are two types of annuities namely ordinary annuity and annuity due. Broadly
speaking, however, annuities are classified into three types:
i) ordinary annuity,
ii) annuity due, and
iii) deferred annuity
i) Future value of an Ordinary Annuity – An ordinary annuity is an annuity for which
the cash flows occur at the end of each period. An ordinary Annuity is a series of
equal periodic payments in which each payment is made at the end of the period.
Ordinary annuity exists when payments or receipts occur at the end of each period.
Therefore, the future value of an ordinary annuity is the amount computed at the
period when exactly the final (nth) cash flow is made. Graphically, future value of an
ordinary annuity can be represented as follows:

0 1 2 ------------------ n

PMT1 PMT2 ---------------PMTn

The future value is computed at point n where PMTn is made.

[ ]
n
(1+i) − 1
FVAn = PMT i
Where:
FVAn = Future value of an ordinary annuity
PMT = Periodic payments
i = Interest rate per period
n = Number of periods

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 Or
FVAn = PMT (FVIFAi,n)
Where:
(FVIFAi, n) = the future value interest factor for an annuity

[ ]
n
(1+i) − 1
= i
The formula for computing the future value interest factor for an annuity at i interest per period,
and n periods is
n
(1+i) −1
FVA=PMT × FVIFA (i , n )=PMT ×
i
Example 1. Supposes Martha deposits birr 1000 at the end of each year for 3 years at 6 % rate of
interest. How much would this annuity accumulate at the end of the third year?
Fv= R[(1+i)n-1]
i
=1000[(1.06)3-1]
0.06
=1000(3.1836)
Fv =birr 3183.60
Example 2: If birr 100 is Deposited in an account at the end of every quarter for the next 5 years,
how much will be in the account at the time of the final deposit if interest is 8 % compounded
quarterly?
i=8%=2%
4
n=5x4=20
Fv=100[(1.02)20-1
0.02
=100[24.2974
= 2429.74
Exercise: When Derartu was born, her parents decided to deposit birr 500 every 6 months at the
end for 15 years in an account earning 6% compounded semiannually. How much will be in account
after the last deposit is made?
F=R[1+i)n-1] i=6%/2=3%
i n=15X2=30

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=500[(1.03)30-1]
0.03
=birr 23787.71
Ordinary Annuities: Sinking fund
A sinking fund is fund in to which periodic payments are made in order to accumulate a specified
amount at point in the future.
F= R [l+i) n-1]
i
R= F
[(1+i)n-1]
i

Example: How much should be deposited in a sinking fund at the end of each quarter for 5 years to
accumulate birr 10,000 if the fund earns 8 % compounded quarterly?
N=5x4=20
i= 8%/2=2%
R=F[ i ]
(1+i)n-1
R=10,000 [ 0.02 ]
(1.02)20-1
=10,000(0.0411567) = birr 411.57

ii) Future value of an Annuity Due. An annuity due is an annuity for which the payments occur
at the beginning of each period. Annuity due exists when payments or receipts occur at the
beginning of each period. Therefore, the future value of an annuity due is computed exactly one
period after the final payment is made. Graphically, this can be depicted as:

0 1 2 --------------------- n

PMT1 PMT2PMT3 -----------------------PMTn + 1

The future value of an annuity due is computed at point n where PMTn + 1 is made
FVAD (Annuity due) = PMT (FVIFAi, n) (1 + i)

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 Or

[ ]
n
(1+i) − 1
= PMT i ( 1 + i)
Example 1: suppose Daniel deposits birr 1000 at the beginning of each year for 3 years at 6%
rate of interest How much would this annuity accumulate after the third year payment is made?
Fv=R[1+i)n-1](1+i)
i
=1000[(1.06)3-1](1.06)
0.06
=birr 3374.62
Example 2. If birr 100 is deposited in an account at the beginning of every quarter for the next 5
years, how much will be in the account at the time of the final deposit if interest is 8%
compounded quarterly?
Solution
Fv=R[(1+i)n-1] (1+i) n=5x4=20
i i=8%/4=2%
=100[(1.02)20-1(1.02)
0.02
=birr 2478.33

iii) Future value of Deferred Annuity is an annuity for which the amount is computed two or
more period after the final payment is made.
0 1 2 ------------------n --------------n + x

PMT1 PMT2PMTn

The future value of a deferred annuity is computed at point n + x

FVDA (Deferred annuity) = PMT (FVIFAi, n) (1 + i)x

[ ]
n
(1+i) − 1
= PMT i (1 + i)x
Where x = the number of periods after the final payment; and X  2.

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 3. Future Value of Series of Unequal Amounts (mixed stream)
 Future value is equal to the sum of the future value of each amount
Example: Suppose you deposit the following series of money at the end of each year for five
years in an account that pays interest rate of 14% per annum: Year 1, Br. 4000; Year 2, Br. 3000;
Year 3, Br. 8000; Year 4, Br. 5000; and Year 5, Br. 6000. If interest is compounded annually,
determine the value of these money at the end of year 5.
Year Amount Compound factor Future value
(14%)
1 4000 1.689 6756
2 3000 1.482 4446
3 8000 1.300 10,400
4 5000 1.140 5700
5 6000 1.000 6000
Total future value 33,302

4. Multi -period Compounding:

Till now, we have seen the cash flows will occur o1nce in a year. But, the cash flows may occur
monthly, bi-monthly, quarterly, half yearly and yearly. In such instances we have to apply the
following formulae.

[ ]
n×m
1
1+
m
FVn = P

The “Rule of 72
Example1: If you invest Br. 5000 today at 10% annual interest rate, how many years does it take
to have this money doubled?

n = 72/i = 72/10 = 7.2 years

Example 2: Suppose you invest Br. 9000 today. At what annual interest rate the money will be
double in 6 years’ time?

i = 72/n = 72/6 = 12%

Example 3
A sum of money may double itself in n years, compounded at 12 percent
interest annually. Find n ?
12
72/12=6
OR Fv= p(l+i)n
2P= P(l+i)n
2=(l+0.12)n
2=(1.12)n
log 2 = log 1.12n

log2= n log 1.12

n= log2
log 1.12

n= 0.301029
0.049218

= 6 years
Present value techniques
Present value is the exact reversal of future value. It is the value today of a single cash flow, an
annuity or uneven cash flows. In other words, a present value is the amount of money that should
be invested today at a given interest rate over a specified period so that we can have the future
value. The process of computing the present value is called discounting
1. Present Value of a Single Amount
Determining future values of single amounts is important in many investing and lending
situations. The present value concept provides an answer to the question what the value today
(the present value) of an amount to be received or paid at some future date will be. It is the
amount that should be invested now at a given interest rate in order to equal the future value of a
single amount. The present value of future amounts is determined using a table prepared for this
purpose or based on the following formula:
Dividing both sides of the future value formula by (l+i) n leads to
F = P(l+i) n
By the definition of negative exponent

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 ( )
n
FVn 1
= FVn
PV = ( 1+i )
n 1+i PV= FV (l+i) -n
=

Where:
PV = Present Value
FVn = Future value at the end of n periods
i = Interest rate per period
n = Number of periods
Or
PV = FVn (PVIFi, n)
Where:
(PVIFi, n) = The present value interest factor for i and n = 1/ (1 + i)n
Example1: Suppose you expect to receive Br. 25,000 at the end of year 4. The discount rate
is 12% per annum. What is the today’s value of this amount if interest is computed:
a. Annually b. Semiannually c. Quarterly d. Monthly
a. PV = 25000(0.636) = 15,900
b. PV = 25000(0.627) = 15,675
c. PV = 25000(0.623) = 15,575
d. PV=25000( )=
Example 2: Suppose that an investor wants to find out the present value of birr 20,000 to
be received after 5 years. Her interest rate is 12% compounded annually. Find the present
value?
P= F (l+i) -n
= 20,000(1.12)-5
20,000(0.5674)
Birr 11,348.54
Example 3: How much must be deposited now in an account paying 8% compounded
monthly in order to have just enough in the account 5 years from now to make a birr
10,000 down payment on a home?
P= F (l+i)-n i=8/12= 0.00666
=10,000(1+8/12%)-60 n= 5x12= 60

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 =10,000(0.671210)
= 6,712.10
Exercise 6
What sum of money deposited now at 8% compounded quarterly will provide just
enough money to pay a birr 1,000 deb.t due 7 years from now?
Solution =birr 574.37

2. Present Value of Future Mixed Cash Flows

Future cash flows may involve series of different cash amounts or equal cash flows. If the series
of cash flows contains differing amounts at different periods, each future amount should be
converted to present value applying the respective factors namely amount, time, and rate
separately. This may be done using this formula:
FV 1 FV 2 FV 3 FV n
PV = 1
+ 2
+ 3
+…+ n
(1+i) (1+i) (1+i) (1+i)
On the other hand, when there are regular cash flows with equal amount and equal interval, the
computation of both present values and future values could be simplified. These regular cash
flows with equal amounts at regular interval are called Annuities as explained in preceding
sections.
Example: Suppose you expect to make the following payments at the end of each year for
six years: year 1, Br. 2000; year 2, Br. 5000; year 3, Br. 6000; year 4, Br. 3000; year 5, Br.
2000; and year 6, Br. 4000. The discount rate is 4% per annum. Find the present value.
Solution:
Year Amount Discount Factor Present Value
1 2000 0.962 1924
2 5000 0.925 4625
3 6000 0.889 5334
4 3000 0.855 2565
5 2000 0.822 1644
6 4000 0.790 3160
Total Present value 19,252

3. Present Values of Annuities

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i) Present value of an Ordinary Annuity is a single amount of money that should be invested
now at a given interest rate in order to provide for an annuity for a certain number of future
periods. The present value of an ordinary annuity is computed at point 0.

[ ]
1
1−

PVAn = PMT
( 1+i )n
i
= PMT [
1− ( 1 + i )−n
i ] = PMT (PVIFAi, n)
Where:
PVAn = The present value of an ordinary annuity
(PVIFAi, n) = The present value interest factor for an annuity
Present value annuity calculations arise when we wish to determine what lump sum must
be deposited in an account now if this sum and the interest it earns are to provide equal
payments for a stated number of periods, with the last payment making the account
balance zero.
Example 1
What sum deposited now in an account earning 8% interest compounded quarterly will
provide quarterly payments of birr 1000 for 10 years, the first payments to be made 3
months from now?
n=10x4=40
i=8%=2%
4
p=R[1-(1+i)-n]
i
=1000[1-(1.02)-40]
0.02
=1000(27.35548)
=birr 27355.48
Example 2.
a) The directors of a company have voted to establish a fund that will pay a retiring
accountant, birr 1000 per month for the next 10 years , the first payment to be made a

16
month from now. How much should be placed in the fund if it earns interest at 12%
compounded monthly?
b) How much interest will the fund earn during its existence?
a) p=R[1-(1+i)-n] n=10x12=120
i i=12%/12=0.01
=1000[1-(1+0.01)-120
0.01
=69,700.52
b) We have 120 payment X birr 1000=birr 120,000
Interest earned= 120,000-69700.52
=50299.48
Example.
Ato Ayalkebet borrowed birr 5,000 to buy a television. He will amortize the 1000 by
monthly payments of birr R each over a period of 3 years. The payment is made at the
end of each month.
Find the monthly payment if interest is 12% compounded monthly.
Find the total amount Ato Ayalkebet will pay.

P=R[1-(1+i)-n] I=12%=1%
i 12
5,000=R[1-01)-36 n=3x12=36
0.01
5,000=R[30.107505]
R=5,000
30.107505
R= 166.07

Ato Ayailkebet pays birr 166.07 a month for 36 months. The total paid will be
= 36x166.07 =5978.52 of which interest is 5978.52-5000=978.52
Exercise: A birr 70,000 car is to be purchased by paying birr 10,000 in cash and
mortgage for 30 years at 12% compounded monthly. The payment is made at the end of
each month.

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 a) Find the monthly payment on the mortgage
b) What will be the total amount of interest paid?
P=R[ 1-(1+i)-n] i=12%/12=1%
i n=30x12=360
60,000=R[1-1.01)-360]
0.01
R=617.17
The total amount paid in 360 months will he
360x617.17=222,181.20
Interest paid will be 222,181.20-60,000
=162,181.20
ii) Present value of an Annuity Due – is the present value computed where exactly the first
payment is to be made. Graphically, this is shown below:

0 1 2 3 ---------------- n

PMT1 PMT2 PMTn

The present value of an annuity due is computed at point 1 while the present value of an
ordinary annuity is computed at point 0.

PVAD = (Annuity due) = PMT i [

1 −(1+i)−n
]
(1 + i) = PMT (PVIFAi, n) (1 + i)

Example. What sum deposited now in an account earing 8% interest compounded

quarterly will provide quarterly payments of birr 1000 for 10 years, the first payment to
be made now?
n=10x4=40
i=8%/4=2%

P=R[1-(1+i)-n](1+i)
i
=1000[1-(1.02)-40](1.02)
0.02

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 =27,902.59
Example 2:
On September 1, 2002 Zerfie borrowed birr 5,000 to buy a house. She will amortize the
loan by monthly payment of birr R starting from September 1,2002 each over a period of
3 years. Find the monthly payment if interest is 12% compounded monthly?
i=12%=1% n=3X12=36
12
P=R[1-(1+i)-n](1+i)
i
5000=R[1-(1.06)-36](1.01)
0.01
5000=R[30.40858] R=164.43

iii) Present value of a Deferred Annuity is computed two or more periods before the first
payment is made.

PVDA (Deferred annuity) = PMT

1 −(1+i)−n
i [ ]
(1 + i)-x = PMT (PVIFAi, n) (1 + i)-x

Where x is the number of periods between the date when he first payment is made and the
date the present value is computed.

iv. Application of PV of Annuities for Loan Payments

How can the present value of an annuity be used to compute loan payments?
Loan Amortization
Loan amortization refers to the determination of equal periodic loan payments necessary to
provide a lender with a specified interest return and repay the loan principal over a specified
period.
Loan amortization schedule is a schedule of equal payments to repay loan . It shows the
allocation of each loan payment to interest and principal.

The following equation can be used to calculate the present value of an annuity. Here what you
have to understand is that the value of an annuity is taken from the annuity table.
PVA = PMT X PVIFA (i, n)

19
 Divide both sides of the equation by PVIFA (i, n).
PVA
PMT =
PVIFA (i, n)
PVA is the amount of the loan. We are usually given an annual interest rate and number of years
for a loan. Since most loans require monthly payments, we would divide the annual rate by 12 to
get i, and multiply the length of the loan in years times 12 to get n. We can then use the present
value interest factor for an annuity (PVIFA) tables in Appendix B to find the value of the
function PVIFA (i, n).
Example 1,
An individual borrow birr 6,000 at 10 percent and agree to make equal annual end of year
payments over four years.
Required: Prepare loan amortization schedule?]

Present value formula should apply to find the periodic loan payment.
Pv=R[1-(1+i)-n]
i
6000=R[1-(1.1)-4]
0.1
R= 6000
3.170
R= 1892.74

Loan Amortization schedule

1.End of year 2. Loan Payments End of Year
payment 3. Interest Principal 4=2- Principal 5=5-4
3
0 - - - 6,000
1 1,892.74 6,000x10% =600 1292.74 4,707.26
2 1,892.74 4,707.26 x10%=470.73 1422.01 3,285.25
3 1,892.74 3,285.25x 10%=328.53 1,564.21 1,721.04
4 1,892.74 1,721.04x10%=172.10 1720.64 0

20
Example 2:
Suppose you borrow today Br. 20,500 from Dashen Bank at 7% annual interest rate. The loan is
to be repaid on installment basis, including interest, over the next five years. Assume the
repayment is made at the end of each year. Determine the amount of annual installment and
prepare loan amortization table.

[ ]
1
1− n
( 1+i )
PVA = A
i

[ ]
1
1−
( 1+. 07 )5
20,500 = A
0 . 07
20, 500 = A(4.100)

A = 20,500/4.100 = 5000 = Annual installment

Loan Amortization table

Annual Annual Principal End of year Unpaid

Year Installment interest payment balance
0 20500
1 5000 1435 3565 16935
2 5000 1185 3815 13120
3 5000 918 4182 9038
4 5000 633 4367 4671
5 5000 329 4671 0

v. Present Value of a Perpetuity

21
Perpetuity is an annuity with an indefinite cash flow. In perpetuity payments, are made
continuously forever. Perpetuities are also called Consol.
Perpetuity present value X Rate = Cash flow
Pv x r = C
Therefore, given a cash flow and a rate of return, we can compute the present value very easily.
The present value of perpetuity is found by using the following formula:
PV (Perpetuity) = Payment = PMT
Interest rate i

Example, An investment offers a perpetual cash flow of birr 500 every year. The return you
require on such an investment is 8 percent, what is the value of this investment? The value of
this perpetuity is:
Pv = C/r = 500/0.08=6250

Effective Rate
Because of lack of comparability, it is hard to judge whether interest quoted at
8 percent compounded semiannually results in more or less interest than
would be the case if the rate was 7.9 percent compounded monthly. To make
the comparison possible, we change both to their equivalent annual rates,
there equivalents are called effective rate.

Example: Birr 1 at 8 % compounded quarterly for one year would amount to

n
F= P(l+i)
=1(1+8/4%) 4
= 1(1.02)4
=1.08243
Which is the same as, the amount of birr 1 at a rate of 0.08243, or 8.243% for
one year.
F= 1(1.08243)1
= 1.08243
Similarly, Birr at 7.9% compounded monthly for one year would amount to
F= P(l+i)n

22
 12
=1(1+7.9%)
12
=1.08192
Which is equivalent to the amount of birr 1 at a rate of 8.192 percent for one
year.

Effective rate of i compounded m times a year

Example 1 find the effective rate of 24% compounded monthly.
i = 24% = 2%
12
m= 12 months in a year.
re= (1+ 0.02)12-1
= 1.26824-1
= 0.26824
= 26.824%
Example 2 Find the effective rate of 15 percent compounded annually,
semiannually, quarterly and weekly.
Annually: 15%, re =15%
Semiannually: re =15.563%
Quarterly: re = 15.865%
Weekly: re = 16.158%

Present Value of $1 Due at the End of n Periods

1
PVIFi , n= n
(1+i)
PERIOD 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

1 .9901 .9804 .9709 .9615 .9524 .9434 .9346 .9259 .9174 .9091
2 .9803 .9612 .9426 .9246 .9070 .8900 .8734 .8573 .8417 .8264
3 .9706 .9423 .9151 .8890 .8638 .8396 .8163 .7938 .7722 .7513
4 .9610 .9238 .8885 .8548 .8227 .7921 .7629 .7350 .7084 .6830
5 .9515 .9057 .8626 .8219 .7835 .7473 .7130 .6806 .6499 .6209
6 .9420 .8880 .8375 .7903 .7462 .7050 .6663 .6302 .5963 .5645
7 .9327 .8706 .8131 .7599 .7107 .6651 .6227 .5835 .5470 .5132

23
8 .9235 .8535 .7894 .7307 .6768 .6274 .5820 .5403 .5019 .4665
9 .9143 .8368 .7664 .7026 .6446 .5919 .5439 .5002 .4604 .4241
10 .9053 .8203 .7441 .6756 .6139 .5584 .5083 .4632 .4224 .3855
11 .8963 .8043 .7224 .6496 .5847 .5268 .4751 .4289 .3875 .3505
12 .8874 .7885 .7014 .6246 .5568 .4970 .4440 .3971 .3555 .3186
13 .8787 .7730 .6810 .6006 .5303 .4688 .4150 .3677 .3262 .2897
14 .8700 .7579 .6611 .5775 .5051 .4423 .3878 .3405 .2992 .2633
15 .8613 .7430 .6419 .5553 .4810 .4173 .3624 .3152 .2745 .2394
16 .8528 .7284 .6232 .5339 .4581 .3936 .3387 .2919 .2519 .2176
17 .8444 .7142 .6050 .5134 .4363 .3714 .3166 .2703 .2311 .1978
18 .8360 .7002 .5874 .4936 .4155 .3503 .2959 .2502 .2120 .1799
19 .8277 .6864 .5703 .4746 .3957 .3305 .2765 .2317 .1945 .1635
20 .8195 .6730 .5537 .4564 .3769 .3118 .2584 .2145 .1784 .1486
21 .8114 .6598 .5375 .4388 .3589 .2942 .2415 .1987 .1637 .1351
22 .8034 .6468 .5219 .4220 .3418 .2775 .2257 .1839 .1502 .1228
23 .7954 .6342 .5067 .4057 .3256 .2618 .2109 .1703 .1378 .1117
24 .7876 .6217 .4919 .3901 .3101 .2470 .1971 .1577 .1264 .1015
25 .7798 .6095 .4776 .3751 .2953 .2330 .1842 .1460 .1160 .0923
26 .7720 .5976 .4637 .3607 .2812 .2198 .1722 .1352 .1064 .0839
27 .7644 .5859 .4502 .3468 .2678 .2074 .1609 .1252 .0976 .0763
28 .7568 .5744 .4371 .3335 .2551 .1956 .1504 .1159 .0895 .0693
29 .7493 .5631 .4243 .3207 .2429 .1846 .1406 .1073 .0822 .0630
30 .7419 .5521 .4120 .3083 .2314 .1741 .1314 .0994 .0754 .0573
35 .7059 .5000 .3554 .2534 .1813 .1301 .0937 .0676 .0490 .0356
40 .6717 .4529 .3066 .2083 .1420 .0972 .0668 .0460 .0318 .0221
45 .6391 .4102 .2644 .1712 .1113 .0727 .0476 .0313 .0207 .0137
50 .6080 .3715 .2281 .1407 .0872 .0543 .0339 .0213 .0134 .0085
55 .5785 .3365 .1968 .1157 .0683 .0406 .0242 .0145 .0087 .0053

Continued

PERIOD 12% 14% 15% 16% 18% 20% 24% 28% 32% 36%

1 .8929 .8772 .8696 .8621 .8475 .8333 .8065 .7813 .7576 .7353
2 .7972 .7695 .7561 .7432 .7182 .6944 .6504 .6104 .5739 .5407
3 .7118 .6750 .6575 .6407 .6086 .5787 .5245 .4768 .4348 .3975
4 .6355 .5921 .5718 .5523 .5158 .4823 .4230 .3725 .3294 .2923
5 .5674 .5194 .4972 .4761 .4371 .4019 .3411 .2910 .2495 .2149
6 .5066 .4556 .4323 .4104 .3704 .3349 .2751 .2274 .1890 .1580
7 .4523 .3996 .3759 .3538 .3139 .2791 .2218 .1776 .1432 .1162
8 .4039 .3506 .3269 .3050 .2660 .2326 .1789 .1388 .1085 .0854
9 .3606 .3075 .2843 .2630 .2255 .1938 .1443 .1084 .0822 .0628
10 .3220 .2697 .2472 .2267 .1911 .1615 .1164 .0847 .0623 .0462
11 .2875 .2366 .2149 .1954 .1619 .1346 .0938 .0662 .0472 .0340
12 .2567 .2076 .1869 .1685 .1372 .1122 .0757 .0517 .0357 .0250
13 .2292 .1821 .1625 .1452 .1163 .0935 .0610 .0404 .0271 .0184
14 .2046 .1597 .1413 .1252 .0985 .0779 .0492 .0316 .0205 .0135
15 .1827 .1401 .1229 .1079 .0835 .0649 .0397 .0247 .0155 .0099
16 .1631 .1229 .1069 .0930 .0708 .0541 .0320 .0193 .0118 .0073
17 .1456 .1078 .0929 .0802 .0600 .0451 .0258 .0150 .0089 .0054
18 .1300 .0946 .0808 .0691 .0508 .0376 .0208 .0118 .0068 .0039
19 .1161 .0829 .0703 .0596 .0431 .0313 .0168 .0092 .0051 .0029
20 .1037 .0728 .0611 .0514 .0365 .0261 .0135 .0072 .0039 .0021
21 .0926 .0638 .0531 .0443 .0309 .0217 .0109 .0056 .0029 .0016
22 .0826 .0560 .0462 .0382 .0262 .0181 .0088 .0044 .0022 .0012
23 .0738 .0491 .0402 .0329 .0222 .0151 .0071 .0034 .0017 .0008
24 .0659 .0431 .0349 .0284 .0188 .0126 .0057 .0027 .0013 .0006
25 .0588 .0378 .0304 .0245 .0160 .0105 .0046 .0021 .0010 .0005
26 .0525 .0331 .0264 .0211 .0135 .0087 .0037 .0016 .0007 .0003

24
27 .0469 .0291 .0230 .0182 .0115 .0073 .0030 .0013 .0006 .0002
28 .0419 .0255 .0200 .0157 .0097 .0061 .0024 .0010 .0004 .0002
29 .0374 .0224 .0174 .0135 .0082 .0051 .0020 .0008 .0003 .0001
30 .0334 .0196 .0151 .0116 .0070 .0042 .0016 .0006 .0002 .0001
35 .0189 .0102 .0075 .0055 .0030 .0017 .0005 .0002 .0001 *
40 .0107 .0053 .0037 .0026 .0013 .0007 .0002 .0001 * *
45 .0061 .0027 .0019 .0013 .0006 .0003 .0001 * * *
50 .0035 .0014 .0009 .0006 .0003 .0001 * * * *
55 .0020 .0007 .0005 .0003 .0001 * * * * *

Present Value of an Annuity of $1 per Period for n Periods

Equation:
1
n
1− n
1 (1+i) 1 1
PVIFA i , n=∑ t
= = −
t=1 (1+i) i i i(1+ i)n

NUMBER
OF 1% 2% 3% 4% 5% 6% 7% 8% 9%
PERIODS
1 0.9901 0.9804 0.9709 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174
2 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591
3 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313
4 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397
5 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897
6 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859
7 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330
8 7.6517 7.3255 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348
9 8.5660 8.1622 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952
10 9.4713 8.9826 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177
11 10.3676 9.7868 9.2526 8.7605 8.3064 7.8869 7.4987 7.1390 6.8052
12 11.2551 10.5753 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 7.1607
13 12.1337 11.3484 10.6350 9.9856 9.3936 8.8527 8.3577 7.9038 7.4869
14 13.0037 12.1062 11.2961 10.5631 9.8986 9.2950 8.7455 8.2442 7.7862
15 13.8651 12.8493 11.9379 11.1184 10.3797 9.7122 9.1079 8.5595 8.0607
16 14.7179 13.5777 12.5611 11.6523 10.8378 10.1059 9.4466 8.8514 8.3126
17 15.5623 14.2919 13.1661 12.1657 11.2741 10.4773 9.7632 9.1216 8.5436
18 16.3983 14.9920 13.7535 12.6593 11.6896 10.8276 10.0591 9.3719 8.7556
19 17.2260 15.6785 14.3238 13.1339 12.0853 11.1581 10.3356 9.6036 8.9501
20 18.0456 16.3514 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 9.1285
21 18.8570 17.0112 15.4150 14.0292 12.8212 11.7641 10.8355 10.0168 9.2922
22 19.6604 17.6580 15.9369 14.4511 13.1630 12.0416 11.0612 10.2007 9.4424
23 20.4558 18.2922 16.4436 14.8568 13.4886 12.3034 11.2722 10.3711 9.5802
24 21.2434 18.9139 16.9355 15.2470 13.7986 12.5504 11.4693 10.5288 9.7066
25 22.0232 19.5235 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.8226
26 22.7952 20.1210 17.8768 15.9828 14.3752 13.0032 11.8258 10.8100 9.9290
27 23.5596 20.7069 18.3270 16.3296 14.6430 13.2105 11.9867 10.9352 10.0266
28 24.3164 21.2813 18.7641 16.6631 14.8981 13.4062 12.1371 11.0511 10.1161
29 25.0658 21.8444 19.1885 16.9837 15.1411 13.5907 12.2777 11.1584 10.1983
30 25.8077 22.3965 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 10.2737
35 29.4086 24.9986 21.4872 18.6646 16.3742 14.4982 12.9477 11.6546 10.5668
40 32.8347 27.3555 23.1148 19.7928 17.1591 15.0463 13.3317 11.9246 10.7574
45 36.0945 29.4902 24.5187 20.7200 17.7741 15.4558 13.6055 12.1084 10.8812
50 39.1961 31.4236 25.7298 21.4822 18.2559 15.7619 13.8007 12.2335 10.9617

25
55 42.1472 33.1748 26.7744 22.1086 18.6335 15.9905 13.9399 12.3186 11.0140

Continued

NUMBER
OF 10% 12% 14% 15% 16% 18% 20% 24% 28% 32%
PERIODS
1 0.9091 0.8929 0.8772 0.8696 0.8621 0.8475 0.8333 0.8065 0.7813 0.7576
2 1.7355 1.6901 1.6467 1.6257 1.6052 1.5656 1.5278 1.4568 1.3916 1.3315
3 2.4869 2.4018 2.3216 2.2832 2.2459 2.1743 2.1065 1.9813 1.8684 1.7663
4 3.1699 3.0373 2.9137 2.8550 2.7982 2.6901 2.5887 2.4043 2.2410 2.0957
5 3.7908 3.6048 3.4331 3.3522 3.2743 3.1272 2.9906 2.7454 2.5320 2.3452
6 4.3553 4.1114 3.8887 3.7845 3.6847 3.4976 3.3255 3.0205 2.7594 2.5342
7 4.8684 4.5638 4.2883 4.1604 4.0386 3.8115 3.6046 3.2423 2.9370 2.6775
8 5.3349 4.9676 4.6389 4.4873 4.3436 4.0776 3.8372 3.4212 3.0758 2.7860
9 5.7590 5.3282 4.9464 4.7716 4.6065 4.3030 4.0310 3.5655 3.1842 2.8681
10 6.1446 5.6502 5.2161 5.0188 4.8332 4.4941 4.1925 3.6819 3.2689 2.9304
11 6.4951 5.9377 5.4527 5.2337 5.0286 4.6560 4.3271 3.7757 3.3351 2.9776
12 6.8137 6.1944 5.6603 5.4206 5.1971 4.7932 4.4392 3.8514 3.3868 3.0133
13 7.1034 6.4235 5.8424 5.5831 5.3423 4.9095 4.5327 3.9124 3.4272 3.0404
14 7.3667 6.6282 6.0021 5.7245 5.4675 5.0081 4.6106 3.9616 3.4587 3.0609
15 7.6061 6.8109 6.1422 5.8474 5.5755 5.0916 4.6755 4.0013 3.4834 3.0764
16 7.8237 6.9740 6.2651 5.9542 5.6685 5.1624 4.7296 4.0333 3.5026 3.0882
17 8.0216 7.1196 6.3729 6.0472 5.7487 5.2223 4.7746 4.0591 3.5177 3.0971
18 8.2014 7.2497 6.4674 6.1280 5.8178 5.2732 4.8122 4.0799 3.5294 3.1039
19 8.3649 7.3658 6.5504 6.1982 5.8775 5.3162 4.8435 4.0967 3.5386 3.1090
20 8.5136 7.4694 6.6231 6.2593 5.9288 5.3527 4.8696 4.1103 3.5458 3.1129
21 8.6487 7.5620 6.6870 6.3125 5.9731 5.3837 4.8913 4.1212 3.5514 3.1158
22 8.7715 7.6446 6.7429 6.3587 6.0113 5.4099 4.9094 4.1300 3.5558 3.1180
23 8.8832 7.7184 6.7921 6.3988 6.0442 5.4321 4.9245 4.1371 3.5592 3.1197
24 8.9847 7.7843 6.8351 6.4338 6.0726 5.4509 4.9371 4.1428 3.5619 3.1210
25 9.0770 7.8431 6.8729 6.4641 6.0971 5.4669 4.9476 4.1474 3.5640 3.1220
26 9.1609 7.8957 6.9061 6.4906 6.1182 5.4804 4.9563 4.1511 3.5656 3.1227
27 9.2372 7.9426 6.9352 6.5135 6.1364 5.4919 4.9636 4.1542 3.5669 3.1233
28 9.3066 7.9844 6.9607 6.5335 6.1520 5.5016 4.9697 4.1566 3.5679 3.1237
29 9.3696 8.0218 6.9830 6.5509 6.1656 5.5098 4.9747 4.1585 3.5687 3.1240
30 9.4269 8.0552 7.0027 6.5660 6.1772 5.5168 4.9789 4.1601 3.5693 3.1242
35 9.6442 8.1755 7.0700 6.6166 6.2153 5.5386 4.9915 4.1644 3.5708 3.1248
40 9.7791 8.2438 7.1050 6.6418 6.2335 5.5482 4.9966 4.1659 3.5712 3.1250
45 9.8628 8.2825 7.1232 6.6543 6.2421 5.5523 4.9986 4.1664 3.5714 3.1250
50 9.9148 8.3045 7.1327 6.6605 6.2463 5.5541 4.9995 4.1666 3.5714 3.1250
55 9.9471 8.3170 7.1376 6.6636 6.2482 5.5549 4.9998 4.1666 3.5714 3.1250

Future Value of $1 at the End of n Periods

n
Equation : FVIFi , n=( 1+i )

PERIOD 1% 2% 3% 4% 5% 6% TABLE 8% 9% 10%

VALUE
1 1.0100 1.0200 1.0300 1.0400 1.0500 1.0600 1.0700 1.0800 1.0900 1.1000
2 1.0201 1.0404 1.0609 1.0816 1.1025 1.1236 1.1449 1.1664 1.1881 1.2100
3 1.0303 1.0612 1.0927 1.1249 1.1576 1.1910 1.2250 1.2597 1.2950 1.3310
4 1.0406 1.0824 1.1255 1.1699 1.2155 1.2625 1.3108 1.3605 1.4116 1.4641

26
5 1.0510 1.1041 1.1593 1.2167 1.2763 1.3382 1.4026 1.4693 1.5386 1.6105
6 1.0615 1.1262 1.1941 1.2653 1.3401 1.4185 1.5007 1.5869 1.6771 1.7716
7 1.0721 1.1487 1.2299 1.3159 1.4071 1.5036 1.6058 1.7138 1.8280 1.9487
8 1.0829 1.1717 1.2668 1.3686 1.4775 1.5938 1.7182 1.8509 1.9926 2.1436
9 1.0937 1.1951 1.3048 1.4233 1.5513 1.6895 1.8385 1.9990 2.1719 2.3579
10 1.1046 1.2190 1.3439 1.4802 1.6289 1.7908 1.9672 2.1589 2.3674 2.5937
11 1.1157 1.2434 1.3842 1.5395 1.7103 1.8983 2.1049 2.3316 2.5804 2.8531
12 1.1268 1.2682 1.4258 1.6010 1.7959 2.0122 2.2522 2.5182 2.8127 3.1384
13 1.1381 1.2936 1.4685 1.6651 1.8856 2.1329 2.4098 2.7196 3.0658 3.4523
14 1.1495 1.3195 1.5126 1.7317 1.9799 2.2609 2.5785 2.9372 3.3417 3.7975
15 1.1610 1.3459 1.5580 1.8009 2.0789 2.3966 2.7590 3.1722 3.6425 4.1772
16 1.1726 1.3728 1.6047 1.8730 2.1829 2.5404 2.9522 3.4259 3.9703 4.5950
17 1.1843 1.4002 1.6528 1.9479 2.2920 2.6928 3.1588 3.7000 4.3276 5.0545
18 1.1961 1.4282 1.7024 2.0258 2.4066 2.8543 3.3799 3.9960 4.7171 5.5599
19 1.2081 1.4568 1.7535 2.1068 2.5270 3.0256 3.6165 4.3157 5.1417 6.1159
20 1.2202 1.4859 1.8061 2.1911 2.6533 3.2071 3.8697 4.6610 5.6044 6.7275
21 1.2324 1.5157 1.8603 2.2788 2.7860 3.3996 4.1406 5.0338 6.1088 7.4002
22 1.2447 1.5460 1.9161 2.3699 2.9253 3.6035 4.4304 5.4365 6.6586 8.1403
23 1.2572 1.5769 1.9736 2.4647 3.0715 3.8197 4.7405 5.8715 7.2579 8.9543
24 1.2697 1.6084 2.0328 2.5633 3.2251 4.0489 5.0724 6.3412 7.9111 9.8497
25 1.2824 1.6406 2.0938 2.6658 3.3864 4.2919 5.4274 6.8485 8.6231 10.835
26 1.2953 1.6734 2.1566 2.7725 3.5557 4.5494 5.8074 7.3964 9.3992 11.918
27 1.3082 1.7069 2.2213 2.8834 3.7335 4.8223 6.2139 7.9881 10.245 13.110
28 1.3213 1.7410 2.2879 2.9987 3.9201 5.1117 6.6488 8.6271 11.167 14.421
29 1.3345 1.7758 2.3566 3.1187 4.1161 5.4184 7.1143 9.3173 12.172 15.863
30 1.3478 1.8114 2.4273 3.2434 4.3219 5.7435 7.6123 10.063 13.268 17.449
40 1.4889 2.2080 3.2620 4.8010 7.0400 10.286 14.974 21.725 31.409 45.259
50 1.6446 2.6916 4.3839 7.1067 11.467 18.420 29.457 46.902 74.358 117.39

60 1.8167 3.2810 5.8916 10.520 18.679 32.988 57.946 101.26 176.03 304.48

Continued

PERIOD 12% 14% 15% 16% 18% 20% 24% 28% 32% 36%

1 1.1200 1.1400 1.1500 1.1600 1.1800 1.2000 1.2400 1.2800 1.3200 1.3600
2 1.2544 1.2996 1.3225 1.3456 1.3924 1.4400 1.5376 1.6384 1.7424 1.8496
3 1.4049 1.4815 1.5209 1.5609 1.6430 1.7280 1.9066 2.0972 2.3000 2.5155
4 1.5735 1.6890 1.7490 1.8106 1.9388 2.0736 2.3642 2.6844 3.0360 3.4210
5 1.7623 1.9254 2.0114 2.1003 2.2878 2.4883 2.9316 3.4360 4.0075 4.6526
6 1.9738 2.1950 2.3131 2.4364 2.6996 2.9860 3.6352 4.3980 5.2899 6.3275

27
7 2.2107 2.5023 2.6600 2.8262 3.1855 3.5832 4.5077 5.6295 6.9826 8.6054
8 2.4760 2.8526 3.0590 3.2784 3.7589 4.2998 5.5895 7.2058 9.2170 11.703
9 2.7731 3.2519 3.5179 3.8030 4.4355 5.1598 6.9310 9.2234 12.166 15.917
10 3.1058 3.7072 4.0456 4.4114 5.2338 6.1917 8.5944 11.806 16.060 21.647
11 3.4785 4.2262 4.6524 5.1173 6.1759 7.4301 10.657 15.112 21.199 29.439
12 3.8960 4.8179 5.3503 5.9360 7.2876 8.9161 13.215 19.343 27.983 40.037
13 4.3635 5.4924 6.1528 6.8858 8.5994 10.699 16.386 24.759 36.937 54.451
14 4.8871 6.2613 7.0757 7.9875 10.147 12.839 20.319 31.691 48.757 74.053
15 5.4736 7.1379 8.1371 9.2655 11.974 15.407 25.196 40.565 64.359 100.71
16 6.1304 8.1372 9.3576 10.748 14.129 18.488 31.243 51.923 84.954 136.97
17 6.8660 9.2765 10.761 12.468 16.672 22.186 38.741 66.461 112.14 186.28
18 7.6900 10.575 12.375 14.463 19.673 26.623 48.039 85.071 148.02 253.34
19 8.6128 12.056 14.232 16.777 23.214 31.948 59.568 108.89 195.39 344.54
20 9.6463 13.743 16.367 19.461 27.393 38.338 73.864 139.38 257.92 468.57
21 10.804 15.668 18.822 22.574 32.324 46.005 91.592 178.41 340.45 637.26
22 12.100 17.861 21.645 26.186 38.142 55.206 113.57 228.36 449.39 866.67
23 13.552 20.362 24.891 30.376 45.008 66.247 140.83 292.30 593.20 1178.7
24 15.179 23.212 28.625 35.236 53.109 79.497 174.63 374.14 783.02 1603.0
25 17.000 26.462 32.919 40.874 62.669 95.396 216.54 478.90 1033.6 2180.1
26 19.040 30.167 37.857 47.414 73.949 114.48 268.51 613.00 1364.3 2964.9
27 21.325 34.390 43.535 55.000 87.260 137.37 332.95 784.64 1800.9 4032.3
28 23.884 39.204 50.066 63.800 102.97 164.84 412.86 1004.3 2377.2 5483.9
29 26.750 44.693 57.575 74.009 121.50 197.81 511.95 1285.6 3137.9 7458.1
30 29.960 50.950 66.212 85.850 143.37 237.38 634.82 1645.5 4142.1 10143.
40 93.051 188.88 267.86 378.72 750.38 1469.8 5455.9 19427. 66521. *
50 289.00 700.23 1083.7 1670.7 3927.4 9100.4 46890. * * *
60 897.60 2595.9 4384.0 7370.2 20555. 56348. * * * *

Future Value of an Annuity of $1 per Period for n Periods

Equation:
n n
(1+ i) −1
FVIFA i , n=∑ (1+i)n−t=
t=1 i

28
NUMBER
OF 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
PERIODS
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 2.0100 2.0200 2.0300 2.0400 2.0500 2.0600 2.0700 2.0800 2.0900 2.1000
3 3.0301 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3.2464 3.2781 3.3100
4 4.0604 4.1216 4.1836 4.2465 4.3101 4.3746 4.4399 4.5061 4.5731 4.6410
5 5.1010 5.2040 5.3091 5.4163 5.5256 5.6371 5.7507 5.8666 5.9847 6.1051
6 6.1520 6.3081 6.4684 6.6330 6.8019 6.9753 7.1533 7.3359 7.5233 7.7156
7 7.2135 7.4343 7.6625 7.8983 8.1420 8.3938 8.6540 8.9228 9.2004 9.4872
8 8.2857 8.5830 8.8923 9.2142 9.5491 9.8975 10.260 10.637 11.028 11.436
9 9.3685 9.7546 10.159 10.583 11.027 11.491 11.978 12.488 13.021 13.579
10 10.462 10.950 11.464 12.006 12.578 13.181 13.816 14.487 15.193 15.937
11 11.567 12.169 12.808 13.486 14.207 14.972 15.784 16.645 17.560 18.531
12 12.683 13.412 14.192 15.026 15.917 16.870 17.888 18.977 20.141 21.384
13 13.809 14.680 15.618 16.627 17.713 18.882 20.141 21.495 22.953 24.523
14 14.947 15.974 17.086 18.292 19.599 21.015 22.550 24.215 26.019 27.975
15 16.097 17.293 18.599 20.024 21.579 23.276 25.129 27.152 29.361 31.772
16 17.258 18.639 20.157 21.825 23.657 25.673 27.888 30.324 33.003 35.950
17 18.430 20.012 21.762 23.698 25.840 28.213 30.840 33.750 36.974 40.545
18 19.615 21.412 23.414 25.645 28.132 30.906 33.999 37.450 41.301 45.599
19 20.811 22.841 25.117 27.671 30.539 33.760 37.379 41.446 46.018 51.159
20 22.019 24.297 26.870 29.778 33.066 36.786 40.995 45.762 51.160 57.275
21 23.239 25.783 28.676 31.969 35.719 39.993 44.865 50.423 56.765 64.002
22 24.472 27.299 30.537 34.248 38.505 43.392 49.006 55.457 62.873 71.403
23 25.716 28.845 32.453 36.618 41.430 46.996 53.436 60.893 69.532 79.543
24 26.973 30.422 34.426 39.083 44.502 50.816 58.177 66.765 76.790 88.497
25 28.243 32.030 36.459 41.646 47.727 54.865 63.249 73.106 84.701 98.347
26 29.526 33.671 38.553 44.312 51.113 59.156 68.676 79.954 93.324 109.18
27 30.821 35.344 40.710 47.084 54.669 63.706 74.484 87.351 102.72 121.10
28 32.129 37.051 42.931 49.968 58.403 68.528 80.698 95.339 112.97 134.21
29 33.450 38.792 45.219 52.966 62.323 73.640 87.347 103.97 124.14 148.63
30 34.785 40.568 47.575 56.085 66.439 79.058 94.461 113.28 136.31 164.49
40 48.886 60.402 75.401 95.026 120.80 154.76 199.64 259.06 337.88 442.59
50 64.463 84.579 112.80 152.67 209.35 290.34 406.53 573.77 815.08 1163.9

60 81.670 114.05 163.05 237.99 353.58 533.13 813.52 1253.2 1944.8 3034.8

Continued

NUMBER
OF 12% 14% 15% 16% 18% 20% 24% 28% 32% 36%
PERIODS
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000

29
2 2.1200 2.1400 2.1500 2.1600 2.1800 2.2000 2.2400 2.2800 2.3200 2.3600
3 3.3744 3.4396 3.4725 3.5056 3.5724 3.6400 3.7776 3.9184 4.0624 4.2096
4 4.7793 4.9211 4.9934 5.0665 5.2154 5.3680 5.6842 6.0156 6.3624 6.7251
5 6.3528 6.6101 6.7424 6.8771 7.1542 7.4416 8.0484 8.6999 9.3983 10.146
6 8.1152 8.5355 8.7537 8.9775 9.4420 9.9299 10.980 12.136 13.406 14.799
7 10.089 10.730 11.067 11.414 12.142 12.916 14.615 16.534 18.696 21.126
8 12.300 13.233 13.727 14.240 15.327 16.499 19.123 22.163 25.678 29.732
9 14.776 16.085 16.786 17.519 19.086 20.799 24.712 29.369 34.895 41.435
10 17.549 19.337 20.304 21.321 23.521 25.959 31.643 38.593 47.062 57.352
11 20.655 23.045 24.349 25.733 28.755 32.150 40.238 50.398 63.122 78.998
12 24.133 27.271 29.002 30.850 34.931 39.581 50.895 65.510 84.320 108.44
13 28.029 32.089 34.352 36.786 42.219 48.497 64.110 84.853 112.30 148.47
14 32.393 37.581 40.505 43.672 50.818 59.196 80.496 109.61 149.24 202.93
15 37.280 43.842 47.580 51.660 60.965 72.035 100.82 141.30 198.00 276.98
16 42.753 50.980 55.717 60.925 72.939 87.442 126.01 181.87 262.36 377.69
17 48.884 59.118 65.075 71.673 87.068 105.93 157.25 233.79 347.31 514.66
18 55.750 68.394 75.836 84.141 103.74 128.12 195.99 300.25 459.45 700.94
19 63.440 78.969 88.212 98.603 123.41 154.74 244.03 385.32 607.47 954.28
20 72.052 91.025 102.44 115.38 146.63 186.69 303.60 494.21 802.86 1298.8
21 81.699 104.77 118.81 134.84 174.02 225.03 377.46 633.59 1060.8 1767.4
22 92.503 120.44 137.63 157.41 206.34 271.03 469.06 812.00 1401.2 2404.7
23 104.60 138.30 159.28 183.60 244.49 326.24 582.63 1040.4 1850.6 3271.3
24 118.16 158.66 184.17 213.98 289.49 392.48 723.46 1332.7 2443.8 4450.0
25 133.33 181.87 212.79 249.21 342.60 471.98 898.09 1706.8 3226.8 6053.0
26 150.33 208.33 245.71 290.09 405.27 567.38 1114.6 2185.7 4260.4 8233.1
27 169.37 238.50 283.57 337.50 479.22 681.85 1383.1 2798.7 5624.8 11198.0
28 190.70 272.89 327.10 392.50 566.48 819.22 1716.1 3583.3 7425.7 15230.3
29 214.58 312.09 377.17 456.30 669.45 984.07 2129.0 4587.7 9802.9 20714.2
30 241.33 356.79 434.75 530.31 790.95 1181.9 2640.9 5873.2 12941. 28172.3
40 767.09 1342.0 1779.1 2360.8 4163.2 7343.9 22729. 69377. * *
50 2400.0 4994.5 7217.7 10436. 21813. 45497. * * * *
60 7471.6 18535. 29220. 46058. * * * * * *

30