Simple Interest Vs Compound interest

Principal 100
Annual Interest 100
Number of Year 20 r
Simple Interest Compound Interest
Year Investment Interest Year Investment
0 100 0 1175000
1 100 1
2 100 2
3 100 3
4 100 4
5 100 5
6 100 6
7 100 7
8 100 8
9 100 9
10 100 10
11 100 11
12 100 12
13 100 13
14 100 14
15 100 15
16 100 16
17 100 17
18 100 18
19 100 19
20 100 20
100 2000 2100
 1 2 3 4 5
12.00% 1000
Compound Interest 10%
Interest

1316000
1473920
1650790.4
1848885.248
2070751.47776
2319241.6550912
2597550.65370215
2909256.7321464
3258367.54000397
3649371.64480445
4087296.24218098
4577771.7912427
5127104.40619183
5742356.93493485
6431439.76712703
7203212.53918227
8067598.04388415
9035709.80915025
10119994.9862483
11334394.3845981
Frequency of Compounding
Assume a bank gives 10% as its quoted interest rate. Calculate the effective interest rate if interest is compounded monthly, q
10%
Monthly Months 1 2 3 4 5 6 7
Interest 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8%
1000 1008.33 1016.74 1025.21 1033.75 1042.37 1051.05 1059.81

Quarterly Quarter 1 2 3 4
Interest 2.5% 2.5% 2.5% 2.5%
1000 1025.00 1050.63 1076.89 1103.81

Semi Annually Half 1 2

Interest 5% 5%
100 105.00 110.25
ompounded monthly, quarterly and semi-annually

8 9 10 11 12
0.8% 0.8% 0.8% 0.8% 0.8%
1068.64 1077.55 1086.53 1095.58 1104.71
Effective Interest Rates
Annual Rate Compounding Frequency In Numbers Effective Rate
10.00% Annually 1 10.00%
10.00% Semi Annually 2 10.25%
10.00% Quarterly 4 10.38%
10.00% Monthly 12 10.47%
10.00% DaIly 365 10.52%

Annual Rate Compounding Frequency In Numbers Effective Rate

25.00% Annually 1 25.00%
25.00% Semi Annually 2 26.56%
25.00% Quarterly 4 27.44%
30.00% Monthly 12 34.49%
33.00% DaIly 365 39.08%
Future Value

1. You have total deposit with bank in your fixed deposit Rs.1,00,000. How much you will get after 20
interest?

Saving per year 100,000.00

Investment Returns 11%
Years till retirement 20
Future Value ₹ 2,184,130.22

2. You have just purchased an investment property for Rs 400,000. You expect the value of the prope
compound interest rate of 8% over the next 10 years. How much do you expect the property to be wo

Present Value 400,000.00

Interest Rate 8%
Number of years 10
Future Value ₹ 4,122,158.42

3. If I deposit Rs100 into an account earning 10% per year, how much will my deposit be worth after 5

Present Value 100.00

Interest Rate 10%
Number of years 5
Future Value ₹ 508.40

4. What if we had the same problem but interest is compounded monthly?

Present Value 100.00

Interest Rate 10%
Number of years 5*
Future Value ₹ 7,743.71

5. How much would I have in my retirement account if I deposited Rs 2000 each year for 35 years and

PMT : ₹ -2,000.00 PMT :

I: 10.00% I:
n: 35 n:
FVA? ₹ 80,889.56 FVA?
6. Instead, what if I made monthly deposits of Rs 166.67? How about monthly deposits of Rs 333.33?

PMT : ₹ -166.67 PMT :

I: 0.83% I:
n: 420 n:
FVA? ₹ 81,246.72 FVA?
0,000. How much you will get after 20 years with 11% of rate of

00. You expect the value of the property to increase at an annual

h do you expect the property to be worth after 10 years?

much will my deposit be worth after 5 years?

d monthly?

ed Rs 2000 each year for 35 years and I earned 10% on my savings? What about Rs 4,000?

₹ -4,000.00
10.00%
35
₹ 161,779.12
bout monthly deposits of Rs 333.33?

₹ -333.33
0.83%
420
₹ 162,488.56
Present Value
1. What is the Present Value of Rs.1,000 return received from Investment in 2 years if the inter

a). 12% per annum discounted annually

Future Value 1,000.00

Rate 12%
Number of years 2
Present Value ₹ 797.19

b). 12% per annum discounted semi-annually

Future Value 1,000.00

Rate 12%
Number of years 2
Present Value ₹ 792.09

c). 12% per annum discounted Quarterly

Future Value 1,000.00

Rate 12%
Number of years 2
Present Value ₹ 789.41

d). 12% per annum discounted monthly

Future Value 1,000.00

Rate 12%
Number of years 2
Present Value ₹ 787.57

e). 12% per annum discounted daily

Future Value 1,000.00

Rate 12%
Number of years 2
Present Value ₹ 0.70

2. Suppose you want to earn Rs.1500 in three years at 7% rate of interest.

How much should you invest today to get Rs.1500 in three years?

Inputs . Column2
Future Value 1500
Rate of Interest 7%
Number of Years 3
Present Value of Investment ₹ 1,224.45

Present Value of Investment

(Mathematical Formula)

3. What is the present value of an offer of Rs. 14,000 two years from now if the opportunity co

Future Value 14000

Rate of Interest 17%
Number of Years 2
Present Value of Investment ₹ 10,227.19

4. How much would you have to deposit today to have Rs. 10,000 in five years at 6% interest d

Future Value 10000

Rate of Interest 6%
Number of Years 5
Present Value of Investment ₹ 7,424.70

5. You needed a Capital of Rs.10,00,000 after 10 Years. Compute the amount of investment req

Capital Needed after 10 years 1000000

Number of years 10
Expected Return in Investments 8%
Lumpsum needed to be invested today $463,193.49

6. Refer the above data and calculate how much required to invest annually, if you have Rs.2,0
Amount available today 200000
Annual Investments needed $92,638.70
t in 2 years if the interest rate is?
w if the opportunity cost of capital (discount rate) is 17% per year discounted annually?

years at 6% interest discounted quarterly?

unt of investment required at the rate of interest of 8%?

ally, if you have Rs.2,00,000 with you today?

FV of Annuity
5% 0 1 2 3 4
1000 1000 1000 1000 1000

0 1000
1 1000
2 1000
3 1000
4 1000
5525.63125

PV of Annuity
5% 0 1 2 3 4
1000 1000 1000 1000 1000

1 1000
2 1000
3 1000
4 1000
5 1000

₹ 4,329.48

Payment 10000
Interest rate 7%
Periods 25 Annuity Due
PV

FV
Perpetuity
What is the present value of receiving Rs.10000 per year for the rest of your life with a discount rate of 3.75%

Perpetuity = Cashflows / Discount Rate

10000 3.75%

Assume
Years Rate PMT PV
20 3.75% 10000
50 3.75% 10000
75 3.75% 10000
100 3.75% 10000
300 3.75% 10000
400 3.75% 10000
500 3.75% 10000