Week 6 Numerical Examples

Week 6: Lecture

Numerical Examples of TVM

Below you will find examples which determine the future value, present value, and the rate of return:


Future Value Question
What is the future value after one year of $100 invested today at 5% annual interest? Answer using the algebraic version of the FV equation:

tvm_100dollars_5percent_1year_algebraid_eq.jpg

Answer using the interest factor version of the FV equation.   Download FV Table 

tvm_100dollars_5percent_1year_interest_factor_eq.jpg

 

Present Value Question
What is the present value of $105 to be received in one year if your required rate of return is 5%? Answer using the algebraic version of the PV equation:

tvm_105dollars_5percent_1year_pv_algebraid_eq.jpg

Answer using the interest factor version of the PV equation. Download  PV Table

   

tvm_105dollars_5percent_1year_pv_interest_factor_eq.jpg

 

Rate of Return Question
What is the rate of return needed to produce $105 at the end of one year from $100 invested today?

tvm_105dollars_5percent_1year_rateofreturn_algebraid_eq.jpg

Note: There is no interest factor version for the rate of return formula. You must solve it algebraically.