Present Value of Compounded Value Formula

Present Value of Compounded Value Formula

Present value of compounded value can be calculated by the following simple formula

Present Value       = Compounded Value/e^rt

E=2.718

r= Rate of interest

t= compounding time

Example

Amount = 10,000

Compound interest= 12%

Period =3 Years

Compounded Value = 10,000x (1+12%)³=14049

Solution

Present Value       = Compounded Value/e^rt

=14,049/(2.718)^(.12)(3)

=14,049/(2.718)^.36

=14,049/1.4333

=9800

Compound Interest Doubling Time Formula

Compound Interest Doubling Time Formula

This following formula is used to calculate the period in which the amount would be doubled using the prevailing interested rate.

Doubling period Formula = ln(2)/r

r= interest Rate

Example

Interest rate =9%

Doubling Period?

Solution

Doubling Period Formula = ln(2)/r

=ln (2)/9%

=ln(2)/.09

=7.70 Years

It takes 7.7 years that an amount would be doubled. for example if 10,000 was invested ,then it would be 20,000 in 7.7 years.

Future Value of Annuity Due Formula

Future Value of Annuity Due Formula

Future value of annuity is calculated to determine the future value of the series of payment. This concept is widely used in insurance company.

Annuity Factor =Cx [(1+i)ⁿ-1] x (1+r)

                              i

Example

Amount Deposited= 2000

Period = 5 Years

Interest Rate =9%

Solution

Annuity Factor =C x [(1+i)ⁿ-1] x (1+r)

                               i

= Cx [(1+9%)⁵-1] x (1+9%)

           9%

=5.984 x 1.09

=6.5233

=6.5233 X 2000

=13,047