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Accounting & Finance for Bankers - Business Mathematics- Module A

Accounting & Finance for Bankers - Business Mathematics- Module A. SPBT College. Simple Interest. More Simple Interest …. Compound Interest: A FV Perspective. Compounding …. Time Line: Rs78.35 Invested (5 Years, 5% Interest ). FV 5 = Rs100. PV = Rs78.35.

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Accounting & Finance for Bankers - Business Mathematics- Module A

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  1. Accounting & Finance for Bankers - Business Mathematics- Module A SPBT College

  2. Simple Interest

  3. More Simple Interest …

  4. Compound Interest: A FV Perspective

  5. Compounding …

  6. Time Line: Rs78.35 Invested (5 Years, 5% Interest) FV5 = Rs100 PV = Rs78.35 0 1 2 3 4 5 End of Year

  7. FV4 = Rs272.10 FV3 = Rs251.94 FV2 = Rs233.28 FV1 = Rs216 Future Value of Rs200 (4 Years, 8% Interest ) PV = Rs200 0 1 2 3 4 End of Year Compounding – the process of earning interest in each successive year

  8. FV of a Mixed Cash Flow Stream (5 Years, 5.5% Interest) FV5 = Rs16,689.06 Rs4,335.89 Rs4,462.12 Rs2,226.06 Rs3,165.00 Rs2,500.00 Rs3,500 Rs3,800 Rs2,000 Rs3,000 Rs2,500 0 1 2 3 4 5 End of Year

  9. Future Value Example

  10. Power Of Compound Interest 30.00 20% 25.00 15% 20.00 Future Value of One Rs) 15.00 10.00 10% 5.00 5% 0% 1.00 0 2 4 6 8 10 12 14 16 18 20 22 24 Periods

  11. Format of a Future Value Interest Factor (FVIF) Table

  12. Computing Future Values Using Excel You deposit Rs1,000 today at 3% interest. How much will you have in 5 years? Excel Function =FV (interest, periods, pmt, PV) =FV (.03, 5, ,1000)

  13. Present Value with Compounding

  14. Present Value of Rs500(7 Years, 6% Discount Rate) 0 1 2 3 4 5 6 7 FV7 = Rs500 End of Year PV = Rs332.53

  15. FV1 = Rs214 FV2 = Rs228.98 FV3 = Rs245 FV4 = Rs262.16 PV = Rs200 Present Value of Future Amounts(4 Years, 7% Interest ) Discounting 0 1 2 3 4 End of Year

  16. PV of a Mixed Stream (4 Years, 6% Interest) 0 1 2 3 4 Rs1,500,000 Rs3,000,000 Rs2,000,000 Rs5,000,000 End of Year Rs1,415,100 Rs2,669,700 Rs1,679,200 Rs3,960,500 PV4 = Rs9,724,500

  17. Present Value Examples

  18. Format of a Present Value Interest Factor (PVF) Table

  19. Calculating PV Of A Single Amount Using Excel Example: How much must you deposit today in order to have Rs500 in 7 years if you can earn 6% interest on your deposit? Excel Function =PV (interest, periods, pmt, FV) =PV (.06, 7,,500)

  20. FV & PV of Mixed Stream(5 Years, 4% Interest Rate) Compounding - Rs12,166.5 FVRs6,413.8 Rs3,509.6 Rs5,624.3 Rs4,326.4 Rs3,120.0 -Rs10,000 Rs3,000 Rs5,000 Rs4,000 Rs3,000 Rs2,000.0 0 1 2 3 4 5 End of Year Rs2,884.6 PVRs5,271.7 Rs4,622.8 Rs3,556.0 Rs2,564.4 Rs1,643.9 W. P. Carey Executive MBA Program Discounting

  21. Annuity Cash Flows

  22. FV of Ordinary Annuity(End of 5 Years, 5.5% Interest Rate) Rs1,238.82 Rs1,174.24 Rs1,113.02 Rs1,055.00 Rs1,000.00 Rs1,000 Rs1,000 Rs1,000 Rs1,000 Rs1,000 0 1 2 3 4 5 End of Year

  23. FV of an Ordinary Annuity Using Excel How much will your deposits grow to at the end of five years if you deposit Rs1,000 at the end of each year at 4.3% interest for 5 years? Excel Function =FV (interest, periods, pmt, PV) =FV (.043, 5,1000 )

  24. PV of Ordinary Annuity (5 Years, 5.5% Interest) 0 1 2 3 4 5 Rs1,000 Rs1,000 Rs1,000 Rs1,000 Rs1,000 End of Year Rs947.87 Rs898.45 Rs851.61 Rs807.22 Rs765.13

  25. Annuity Examples

  26. Ordinary Annuity vs. An Annuity Due Annual Cash Flows End of yeara Annuity A (ordinary) Annuity B (annuity due) aThe ends of years 0, 1,2, 3, 4 and 5 are equivalent to the beginnings of years 1, 2, 3, 4, 5, and 6 respectively

  27. Calculating the Future Value of an Annuity Due • Equation for the FV of an ordinary annuity can be converted • into an expression for the future value of an annuity due, • FVAn(annuity due), by merely multiplying by (1 + r)

  28. FV of an Annuity Due Using Excel How much will your deposits grow to at the end of five years if you deposit Rs1,000 at the beginning of each year at 4.3% interest for 5 years? Excel Function =FV (interest, periods, pmt, PV) =FV (.043, 5, 1000) =Rs5,448.89*(1.043)

  29. Deposits Needed to Accumulate a Future Sum • A person wishes to buy a house 5 years from nowand estimates an initial down payment of Rs35,000 will berequired at that time • She wishes to make equal annual end-of-year deposits in an account paying annual interest of 4 percent, so she must determine what size annuity will result in a lump sum equal to Rs35,000 at the end of year 5 • Find the annual deposit required to accumulate FVAn dollars, given an interest rate, r, and a certain number of years, n by solving equation PMT:

  30. Loan Amortization Table (10% interest, 4 Year Term) Payments End of year Beginning-of-year principal(2) End-of-year principal[(2) – (4)](5) Interest[.10 x (2)](3) Loan Payment(1) Principal[(1) – (3)](4) aDue to rounding, a slight difference (Rs.03) exists between beginning-of-year 4 principal (in column 2) and the year-4 principal payment (in column 4)

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