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Financial Management (MBA 511E) Assignment # 2: Nowsheen Noor ID # 1921251

The document discusses formulas for calculating future value (Fv), number of periods (n), interest rate (r), future value of an annuity (FvAn), and present value of an annuity (PvAn). It derives the formulas Fv=PV(1+r)n, n={log(Fv/PV)}/{log(1+r)}, r=(Fv/PV)1/n-1, FvAn=R[(1+r)n-1+(1+r)n-2+...+1], and PvAn=R[1/(1+r)+1/(1+r)2+...+1/(1+r)n]. These formulas allow

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29 views

Financial Management (MBA 511E) Assignment # 2: Nowsheen Noor ID # 1921251

The document discusses formulas for calculating future value (Fv), number of periods (n), interest rate (r), future value of an annuity (FvAn), and present value of an annuity (PvAn). It derives the formulas Fv=PV(1+r)n, n={log(Fv/PV)}/{log(1+r)}, r=(Fv/PV)1/n-1, FvAn=R[(1+r)n-1+(1+r)n-2+...+1], and PvAn=R[1/(1+r)+1/(1+r)2+...+1/(1+r)n]. These formulas allow

Uploaded by

Nowsheen Noor
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© © All Rights Reserved
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Financial Management

(MBA 511E)

Assignment # 2

Submitted by:
Nowsheen Noor
ID # 1921251

Submitted to:
Dr. Chowdhury Saleh Ahmed
Developing the formula of Fv, r, n, FvAn, PvAn

If future value of any taken amount of loan is Fv for the n number of period at r rate of interest
and the present value PV then we get:

 FV= PV (1+r) n
Finding “n”

From the equation,

FV= PV (1+r) n

 FV/ Pv = (1+r)n
 log( FV/ Pv) = log (1+r)n
 log( FV/ Pv) = n log (1+r)
 n = {log( FV/ Pv)}/ {log (1+r)}
Finding “r”

Again we know,

FV= PV (1+r) n

 FV/ Pv = (1+r)n
 (FV/ Pv)1/n = (1+r)nX1/n
 (1+r) = (FV/ Pv)1/n
 r = (FV/ Pv)1/n-1
If FvAn is determined as future value annuity for the r rate of interest for the n year with R
amount then we get:

 FvAn = [R (1+r) n-1]

Generalizing Formula:

 FvAn = R [(1+r) n-1+ (1+r) n-2+ (1+r) n-3+…… +1]


If Present value of Annuity is determined as PvAn with (r) rate of interest for the (n) number of
year with total amount (R), then we get ,

 PvAn = R [1/ (1+r) +1/ (1+r) 2+1/+… (1+r) n]

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