Pof Formula

Question 1

Future value

Answer 1

FV = PV*(1+r)^n if there are changing rates then * by another bracket with amended rate.

Question 2

Present value

Answer 2

PV = FV/((1+r)^n) or PV = FV * (1/(1+r)^n) but the brackets are the iscount factor and the value can be pulled off the relevant table of values

Question 3

Future value of annuity

Answer 3

Also called continuous cash flow
FVA (future value of annuity) = PMT * ((1+r)^n-1)/r

separate or changing payments need to be separated, if i increase the amount then i calculate the original for the whole lifespan and the extra for the its respective lifespan

You must also consider if the payments are monthly therefore divide the annual interest rate / 12 then calculate the months

and also times n by 12 if the payments are monthly

The discount factor can be taken off a table and is the equation aside from the multiplication of the PMT

Question 4

Present value of annuity

Answer 4

PVA = PMT * ((1-(1/(1+r)^n))/r

monthly payments need to be matched with monthly interest rates

similar to future value the annuity factor can be taken off a table and is the part after the PMT

multiply final results by percentages if you need to calculate deposit value. can just do it after the fact

Question 5

PMT equations

Answer 5

PMT = PVA * r / (1-(1/(1+r)^n))
PMT = FVA x r / ((1+r)^n-1)

Question 6

EAR

Answer 6

effective annual rate= (1 + i/n)^n - 1
where i is the APR/ nominal interest rate
and n is the number of periods