FIN2601

PRACTICAL APPLICATIONS TO TIME VALUE OF MONEY CONCEPTS_S2_2020

SIMPLE FUTURE VALUE (FV)
You borrow R5 000 from a friend at 8% per annum, interest to be compounded
annually, Capital and interest is repayable in 5 years’ time, How much will you
repay?

Financial calculator HP10BII+

KEYS DISPLAY
5 000 +/‐ PV ‐5 000,00
8 I/YR 8,00
5N 5,00
FV R7 346,64



FUTURE VALUE (FV) WITH FREQUENT COMPOUNDING
You have saved R10 000 and invest this in a fixed deposit with a bank at 10,5%
compounded quarterly for 4 years, How will you receive in 4 years’ time?

Financial calculator HP10BII+

KEYS DISPLAY
10 000 +/‐ PV ‐10 000,00
10,5 ÷ 4 I/YR 2,63
4x4N 16,00
FV R15 137,38



SIMPLE PRESENT VALUE (PV)
You have just turned 20 years of age and your late Uncle Scrooge

bequeathed you an amount of R5 000 payable on your 25th birthday, Your
father offers to give you the present value today in cash, At an interest rate of
10% p,a, compounded annually how much must your father give you today?

, What is the present value of the bequest?

Financial calculator HP10BII+

KEYS DISPLAY
5 000 FV 5 000,00
10 I/YR 10,00
5N 5,00
PV R3 104,61



The –amount reflects what should be paid today.


PRESENT VALUE (PV) WITH FREQUENT COMPOUNDING
Uncle George is more generous and leaves you a substantial inheritance, You
want to set aside and amount to buy your dream car when you complete your
trainee contract in 5 years’ time. Estimates are that the dream car will cost
R220,000 at that time, A bank is offering you a 5 year fixed deposit at 11,5%
compounded monthly for 5 years, How much should you invest today?

Financial calculator HP10BII+

KEYS DISPLAY
220 000 FV 220 000,00
11,5 ÷ 12 I/YR 0,96
5 x 12 N 60,00
PV R124 134,45


The amount reflects what should be paid today.


CALCULATING THE INTEREST RATE
An amount of R400 000 is invested in a savings account that
, After one year the balance in the account is R464