TIME VALUE OF MONEY

Learning Outcomes:
By the end of this chapter students should be able to:
 Use the various computation tools to analyse the role of TV in finance
 Calculate, interpret and explain the future value and present value of
single amounts
 Calculate, interpret and explain the future value and present value of
lump sums.
 Calculate, interpret and explain the future value and present value of
annuities. (ordinary annuities and annuities due.
 Calculate, interpret and explain the present value of perpetuity:
 Calculate, interpret and explain the present value and future value of
a mixed streams of cash flows.
 Calculate the present value, future value, interest and time period
using discounting and compounding principles.
Financial managers are employed and engaged by the shareholders’ order
to increase the value of the firm, increasing the share price. The value of
the firm is increased by investing in non-current assets such as land,
buildings, production plants and machinery and current assets that will earn
returns greater than the cost of capital. Financial managers should not
invest in these assets unless they increase the value of the firm. The timing
of the investment of funds in assets does not occur instantaneously as
some time elapse before a return is made. Evaluating any financial
decision involving the differences in the timing of cash inflows and outflows
requires the use of a concept known as TIME VALUE OF MONEY. The
TVM principle means that an amount of money today is worthy more than
at some point in time in the future. A rand today can be invested to earn a
return either in the form of interest, dividends or capital gains
Main variables used in TVM
A. Future value: FV calculation of interest on a present value amount
to result in some future amount. This involves compounding which is
increasing the present value into future value
B. Present value: PV this involves discounting future value amounts
into present value using the interest factor, or discount factor.
C. Interest rate (I) I/ Y: when money is invested, some form of return
(interest) is earned at some future date.
D. Number of years (N) = the time period that the amount will be
invested, (periods)

1
E. Payments (PMT) = amount of payment or receipts that is the same
throughout (annuities) If the amounts are different then they are
called mixed streams.

USING A FINANCIAL CALCULATOR: Golden Rules

1. Golden rule when using a Financial Calculator: Important to
always CLEAR your financial calculator before starting a NEW
calculation:
For a SHARP CALCULATOR: 2nd F; ALPHA then 0 and 0
For a HP CALCULATOR: Press orange button (downward arrow)
and press: C ALL
2. To change decimal digits, say from 2 to 4
For a SHARP CALCULATOR: 2nd F; SET UP then 0, 0 then 4
For a HP CALCULATOR: Press orange button, the DISP and
number of digits you want to display: e.g. Press Orange button,
then DISP, then 2
3. Change from 12 months to 1 yr : Press 1, then Orange button,
then PMT/ P/YR button

Using a Financial calculator: SHARP CALCULATOR

1. Start by Key in 0, ENT, then follow the rest with ENT when using
the SHARP Calculator;
2. Then Key –in: 5=N ; 12=I/YR
3. Then key-in 2nd Fn then CFi ; Downward arrow; then Comp PV
= Answer

Using the HP Calculator

1. Key-in 0 CFj, followed by other figures CFj
2. Then key-in 5=n, then 12=I/YR
3. Then downward arrow the key-in NPV = Answer

Basic Formulas

1.FV = PV (1+i) n
2.PV = FV÷ (1+i)n

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PRACTICAL WORKINGS

1. Sibusiso receives a bonus of R1000, and then decides to invest it in

a savings account to earn interest of 10% per annum. What is the
future value in three years’ time?

1. FV = PV (1+i) n : 1000 =PV; n= 3years; i= 10% = 1000 (1.10)3 =

R1331

N i/yr PMT PV FV Comp

3 10% -+1000 ???= 1331

2. PV = FV÷(1+i)n = FV = 1331, n=3years; i=10% = 1331÷(1.10)3 =

R1000

N i/yr PMT FV PV: Comp

3 10 1331 ??? =1000

Intra-year compounding: half-yearly, quarterly, monthly, and daily

Assume Sibusiso wants to compound interest half -yearly

3. FV = PV (1 + i/m)nxm = m = compounding periods

For example, interest is compounded half-yearly. m=(2)

FV = 1000(1+ 10%/2)3x2 = R1340 = 1000x (1.05)6 = R1340

N i/yr PMT PV Comp FV

6=(3x2) 5 = (10%÷2) +-1000 ??? 1340

For example, interest is compounded quarterly. m= (4)

FV = 1000(1+10%/4)3x4 = R1344.88 = 1000 x (1.025)12 = R1344.88

N i/yr PMT PV Comp FV

12 (3x4) 2,5= 10%÷4) +-1000 ???1344.88

Calculate the monthly compounding effect

FV = R1348.02

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Calculate the daily compounding effect
FV= R1388.81

Continuous compounding; assumes that interest is earned

continuously. ė = exponential function with the value of 2.7183
Calculating the Future Value = FV = PVo x ėi xn

Sibusiso deposits R1000 in a savings account for a period of two years earning 10%
interest per annum, but the interest is compounded continuously.
FV2 = PVo x ėixn

= 1000 x 2.71830.10x 2

= R1221.40

Calculating the PV with continuous compounding = PVo = FVn ÷ ėixn

Sibusiso would like to know how much he must deposit in a savings account in order to
receive an amount of R2 000 at the end of 25 years if an annual interest rate is 8%
compounded continuously.

PV = 2000÷ 2.71830.08 x 25 = R270.67

Calculating the effecitve annual rate (interest)

EAR = (1+ i/m)m – 1

What is the EAR if an annual nominal rate of 8% is compounded quarterly?

EAR = (1 + 0.08/4)4 – 1 = 0.0824x 100 = 8.24%

FUTURE VALUE OF ANNUITY

Annuity is a series of equal cash flows over a specified time.

You are investing R1000 per year over 5years at 10% interest rate per
year. How much will have accumulated over the 5-year period if using
the ordinary annuity and then the annuity due?
Ordinary annuity investment is at the end of each period: This will be
for 4years (n-1); ( 5-1)= 4
Year 0 = 1000
Year 1 = 1000(1+i)1 (1.10)1 = 1100
Year 2 = 1100(1+i)1 = 1210 or 1000(1.10)2 = 1210
Year 3 = 1000(1.10)3 =1331
Year 4 = 1000(1.10)4 = 1464.10

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Suppose Sibusiso deposit R2000 at the end of each of the next five
years in a savings account that pays an interest rate of 10% p.a. What
will the FV of these savings after five years.
Formula: FVA = PMT x [(1+i)n – 1]÷ i ] = 2000 x[(1.10)5 – 1] ÷ 0.10 =
R12 210.20

Using a financial calculator

N i/yr PMT PV Comp FV
5 10% -2000 ????
12 210. 20

CALCULATING THE MONTHLY PAYMENTS

Sometimes it necessary to determine the deposit every month or
quarterly in order to generate a certain amount after a specified of
time.

Formula: PMT = FVA ÷ [(1+i)n -1] ÷ i]

Thando wants to invest a monthly sum of money that will accumulate
to R100 000 after ten years. How much must she deposit every month
if her bank offers her interest rate of 8.5% p.a. compounded monthly.

PMT = 100 000 ÷ [ (1+0.085÷12) 10x 12 – 1] ÷ 0.085/12

= 100 000 ÷ 188.138
= R531,52
Using a financial calculator
N i/yr Comp PMT PV FV
10 x 12 = 8.5% ÷ 12= ????? 100 000
120 0.7083
531.52

Annuity due: investment is at the beginning of each period.

Year 1 = 1000(1+1)1 = 1100
Year 2 = 1000(1+1)2 = 1210
Year 3 = 1000(1.1)3 = 1331
Year 4 = 1000(1.1)4 =1464.10
Year 5= 1000(1+0.10)5 = 1610.51

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Calculating the FV of an annuity due
Determine the accumulated amount if you deposit R5 000 in a savings
account at the beginning of each year for the next five years? Assume
an interest rate of 6% compounded annually.
Formula: FVA = PMT x (1+i) x [(1+i)n – 1 ] ÷ i]
5000 x 1.06 x [ (1.06)5 - 1 ] ÷ 0.06]
5000 x 1.06 x 5.637
R29 876.59

Set the calculator to begin mode (BGN). The FVA is then calculated
using the following keys.
Using a financial calculator
N i/yr PMT PV Comp FV
5 6% -5000 ?????
R29 876.59

PV of ordinary annuity
PVA is the current value of a stream of expected or promised future
payments that have been discount to a single equivalent value today.

Suppose that you need an investment that will pay R2000 at the end
of every year for the next five years at an annual interest rate of 10%.
How much should you invest today?

PVA = PMT x [ 1- (1+i)-n ]÷ i]

= 2000 x [ 1 – (1.10-5 ] ÷ 0.06
= 2000 x 3.7908
= R7581. 57

Using a financial calculator

N i/yr PMT Comp PV FV
5 10% -2000 ?????
R7581.57

Calculating the PV of an ordinary monthly annuity

What amount should you invest today at 6% p.a. compounded
monthly, so that you can withdraw R1 500 at the end of each month
for the next five years?

Using a financial calculator

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N i/yr PMT Comp PV FV
5x12 6% ÷ 12 1500
-77 588.34

Calculating the PV of an annuity due

What amount must you invest today at 6% interest, compounding
annually, so that you can withdraw R5 000 at the beginning of each
year for the next five years.

Formula: PVA = PMT x (1+i) x [ 1- (1+i)-n ] ÷ i]

= 5000 x 1.06 x [ 1- (1.06)-5 ] ÷ 0.06]

= 5000 x 1.06 x 4.21

= R22 325.53

Using a financial calculator (BGN MODE)

N i/yr PMT Comp PV FV
5 6% -5000
22 325.53

PRESENT VALUE

PV = FV÷ (1+i)n

You going to receive R10 000 in five years’ time. If you can earn 10%
per annum what is the present value of this amount?

PV = 10000÷ (1+0.10)5 = ???? (1.10)5 = 1.6105, then = 10000/ 1.6105 =

R6209.25

Present value of mixed streams

The following cash inflows are expected over the next five years; 10%
interest
Year Cash inflow Discount Present value
Factor (1÷(1+i)n

1÷ (1.10)1
1 1000 0.9091 909.10

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2 1200 0.8264 991.68
3 1300 0.7513 976.69
4 1400 0.6830 956.20
5 1500 0.6209 931.35
TPV 4765.02

DF: YR 1 = 1/ (1+i)1 ; Yr 2 = 1/(1+i)2 ; Yr3 = 1/(1+i)3 ; Yr4 = 1/(1+i)4; Yr 5 =

1/(1+i)5

YR1 = 1÷1.1 = 0.9091; Yr 2 0.9091÷1.1 = 0.8264 YR 3:

0.8264÷1.1= 0.7513

PV = Cash inflow amount x Discount factor for each year.

TRY TO DO EXAMPLE 4.24 and compare your answers to solution in
book.
Use the Financial Calculator:
Input: 0; then CFj ; 1000,then CFj up to 1500, then CFj= 4765.00

Calculating interest rate:

Suppose that you invest R1080 now and in return you will receive
R1517 in three years` time. Calculate the interest rate of your
investment:
Using Formula = FV = PV (1+i)n =
1517 = 1080 (1+i)3
= 1517/ 1080 = (1+i)3
1.4046 = (1+i)3
𝟑
= √𝟏. 𝟒𝟎𝟔 … . = (1+i)
1.1199 = 1+i
0.1199 = i
i = 11.99%

Using financial calculator:

N i/yr Comp PMT PV FV

3 ???? +-1080 1517
11.99%

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Calculating the number of periods needed to generate a given amount
of cash.

Sometimes it is necessary to calculate the number of time periods it

will take for an initial investment to accumulate to a given FV.
Sibusiso is saving for a trip overseas in four years` time. The cost of
the trip is expected to be R25 000. He wishes to determine if his initial
deposit of R15 000, earning 12% annual interest, will grow to R25 000
by that time.
Using financial calculator:
N Comp i/yr PMT PV FV
???? 12% +-15000 25000
4.51

N.B. It will take Sibusiso 4.51 years to accumulate R15000 into R25000
to make his trip overseas.

PERPETUITIES
A perpetuity is an annuity in which the periodic payments begin on a
fixed date and continue indefinitely. Fixed coupon payments on
permanently invested (irredeemable) sums of money are a good
example of perpetuities. Three types of perpetuity:
 An ordinary perpetuity is when payments are made at the end of
the stated periods
 A perpetuity due is when payments are made at the beginning of
the stated periods.
 A growing perpetuity is when the periodic payments grow at a
given rate (g)

PV∞ = PMT÷i
The governing body of the school requires R125 000 per year to pay
school fees of five matric students as well as to buy them uniforms,
stationery and textbooks. Since the fees and other items increase
every year according to inflation. The inflation is estimated at 5% per
year. Determine the amount that Power Foundation must donate to
the governing body now to fund the bursary.

PV = 125000÷0.05 = R2 500 000

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Calculating the PV of a growing perpetuity
 Cash flow at the end of the first year: R60 000
 Growth rate (g): 10%
 Opportunity cost of capital (i): 20%

PV = PMT ÷ i-g = 60000 ÷ (0.20 -0.10) = R600 000

4.1 What will my investment of R100 500 be worth if my bank pays me simple interest of 9%
per annum and I invest my money for 180 days?

a) R4 460,55
b) R96 039,45
c) R100 550,25
d) R104 960,55

4.2 A client approaches you with the news that she plans to retire on a ranch worth
R3 000 000. She plans to save every year for 20 years. How much must she save at the
end of each year if the interest rate is 12% per annum? (Round off the answer to the
nearest rand.).

a) R36 800
b) R39 000
c) R41 600
d) R43 400

4.3 Miriam took a bond of R250 000 over a 25-year period at 10% per annum. What will the
customer’s outstanding balance be after 12 years if she makes monthly instalments?

a) R1 654,43
b) R52 085,57
c) R197 913,98
d) R275 046,43

10
4.4 I am planning to attend a European Champions soccer match in Brazil. The travel agent
estimates the cost for the week to be R50 000. If I receive 7,5% interest per annum
compounded monthly, how long will it take me to save the amount if I deposit R15 000
now and R1 000 thereafter at the end of every month? (Round off the answer to the
nearest decimal.)

a) 8
b) 16
c) 24
d) 32

4.5 What is the difference between R2 000 invested at 12% p.a. compounded interest for one
year if:

i) Interest is calculated semi-annually, and

ii) Interest is calculated monthly?

a) R0,00
b) R3,35
c) R6,45
d) R13,65

4.6 The value of the nominal rate if the effective rate is 16% compounded semi-annually is
closest to ...

a) 8,00%
b) 15,00%
c) 18,00%
d) 32,00%

4.7 Calculate the effective interest rate if the nominal interest rate earned on an investment is
10% per annum but interest is calculated at the end of each month. (Round off the answer
to the nearest decimal.)

a) 9,57%
b) 10,47%
c) 11,40%
d) 12,76%

4.8 Mr De Villiers has just taken cession of a life assurance policy. The policy will mature in
four years’ time. A premium of R500 per annum is payable. The estimated maturity value of the
policy is R17 194. The growth rate is assumed to be 10% per annum. The present value (PV) of
the policy is nearest to …

a) R2 231
b) R10 000
c) R13 329
d) R13 487

Use the following information to answer questions 4.9 to 4.12.

11
Nthabiseng takes a loan of R500 000 from The Trust Bank in order to buy a new house. The term
of the loan is 20 years and the rate of interest is 14% per annum.

4.9 Nthabiseng’s monthly instalment is closest to …

a) R6 146
b) R6 218
c) R66 222
d) R751 493

4.10 The interest on instalment number 13 is closest to …

a) R5 709
b) R5 776
c) R43 007
d) R49 028

4.11 The capital component of instalment number 13 is closest to …

a) R437
b) R442
c) R23 215
d) R26 465

4.12 The outstanding balance of the loan after instalment number 13 has been paid is closest
to …

a) R283 980
b) R323 737
c) R488 935
d) R494 639

4.13 You are planning to buy a motor vehicle. The bank charges you 15% NACM over a 4 year
repayment period. You can afford monthly instalments of R950 at the end of each month,
and you have a deposit of R15 000. The maximum price you can pay for a vehicle is
closest to …

a) R15 489
b) R17 067
c) R30 979
d) R49 135

4.14 You invest R4 000 annually (at the end of each year) for five successive years in a savings
account at 15% per annum compound interest. At the end of the fifth year you withdraw
R10 000, and the balance is invested at 10% per annum compound interest for 5 years.
The approximate end value of the investment is closest to …

a) R18 318
b) R25 146

12
c) R27 330
d) R29 340

4.15 Nadia plans to study at university in four years’ time. She needs about R20 157 for tuition
and books. If the interest rate at the bank on such investment is 12% per year, the amount
that she should save quarterly is closest to …

a) R1 000
b) R3 105
c) R4 218
d) R5 174

4.16 Calculate the present value of a growing perpetuity with the following information (round
off the answer to the nearest rand):

Cash flow at the end of the first year R60 000

Growth rate (g) 10%
Opportunity cost 20%

a) R60 000
b) R120 000
c) R300 000
d) R600 000

4.17 The growth rate of the following stream of dividends is closest to …

2009: R1,60
2008: R1,38
2007: R1,32
2006: R1,25
2005: R1,20

a) 3,30%
b) 4,50%
c) 7,46%
d) 8,90%

4.18 The Young Investors borrows R10 000 at 12% interest rate for one year. If interest is paid
in advance, the effective rate is closest to ...

a) 10,0%
b) 12,0%
c) 12,6%
d) 13,6%

4.19 Marisa will receive R12 000 per year for the next 10 years as royalty for her work on a
financial management book. What is the present value of her royalty income if the
opportunity cost is 12%?

a) R38 640
b) R60 000

13
c) R67 800
d) R120 000

4.20 Sibusiso plans to retire on a ranch worth R3 000 000. The plan is to save every year for
20 years. If the interest rate is 12% per annum, how much does Sibusiso have to save at
the end of each year? (Round off the answer to the nearest rand).

a) R36 800
b) R39 000
c) R41 600
d) R43 400

Longer questions

LQ 4.1

A customer asks you to calculate his monthly instalments for repayment periods of 24, 36 and 48
months if he borrows R7 500 at 14% per annum, compounded monthly.

LQ 4.2

Peter wishes to purchase a motor vehicle from a dealer in Johannesburg for R150 000. His bank,
ABSA, is prepared to lend him the money on condition that he undertakes to repay the loan
monthly in advance over a period of 36 months. If interest is to be charged at 16,5% per annum
compounded monthly in advance, what will his monthly instalment be?

LQ 4.3

I want to pay half-yearly instalments on my loan account of R100 000. If the bank charges me
16% interest compounded annually over five years, how much will my instalments be?

LQ 4.4

A bill of R150 000 is worth R153 725 as it accumulates daily interest. If interest is 9,95% per year,
what is the tenure of the bill? (Assume a 360-day year.)

LQ 4.5

Cecilia decided to extend her house by adding an extra bedroom. The extension will cost her
R80 000. First National Bank has agreed to give her a loan at a nominal rate of 13,5% per annum
compounded monthly in arrears, provided that she is able to put down a deposit of 10% on the

14
cost price of R80 000. What will her monthly payments be if the loan is to be paid over a period
of 36 months?

LQ 4.6

You have a life policy that is due in four years’ time, but you want to buy a new vehicle now. The
purchase price of the vehicle is R169 000 (ignore VAT and deposit), but you can afford monthly
instalments of only R4 000. What will the last payment be if a 13,5% NACM is charged?

LQ 4.7

You have a choice of receiving 30 payments of R30 000 a year, with the first payment to be
received one year from now, or R150 000 in cash today. If you could earn an interest rate of 20%,
which one would you prefer?

LQ 4.8

A person must pay back a debt of R10 000 in a lump sum after five years. Suppose that the loan
was repaid in semi-annual payments instead, the first due six months from now and the last at
loan termination, what would the amount of each instalment be if the interest rate was 14%
compounded semi-annually?

LQ 4.9

You are required to:

Calculate the present value of a growing perpetuity, given the following information: following
information:

Cash flow (CF1) in at the end of the first year: R50 000
Growth rate (g): 12% p.a.
Opportunity cost of capital (i): 25% p.a.

LQ 4.10

You plan to retire in exactly 20 years. Your goal is to create a fund that will allow you to receive
R200 000 at the end of each year for the 30 years between retirement and death (a psychic told
you that you would die exactly 30 years after you retire). You know that you will be able to earn
11% per year during the 30-year retirement period.

15
You are required to:

Answer the following questions:

a) How large a fund will you need when you retire in 20 years in order to provide the 30-year
R200 000 retirement annuity?

b) How much would you need to provide today as a single amount to the fund as calculated
in (a) if you earn only 9% per year during the 20 years preceding retirement?

16
Chapter 4
Time value of money

Solutions to multiple-choice questions

4.1 d) R104 960,55

FV = (PV × i × n) + PV
= (R100 500 × 9% × 180/365) + R100 500
= R104 960,55

4.2 c) R41 600

Calculator solution:

Enter 20 12 R3 000 000

n i PV PMT FV

Solve for R41 636,34

4.3 c) R197 913,98

Calculator solution:

Enter 25×12=300 10/12 = 0,8333 ± R250 000

n i PV PMT FV

Solve for R2 271,75

AMRT R617,32
4.4 d) 32
AMRT R197 913,98

17
 Calculator solution:

Enter 7,5/12=0,625 ±R1 000 R35 000

±R1 000 R35 000

n i PV PMT FV

Solve for 32 months

4.5 c) R6,45

Calculator solution:

Enter 1x2=2 12/2=6 R2 000

n i PV PMT FV

Solve for R2 247,20

Enter 1x12=12 12/12=1 R2 000

n i PV PMT FV

4.6 b) 15,00%
Solve
2 for2ndF APR 2 000 R2 253,65

16 2ndF APR 15,41% nominal interest rate

Therefore, R2 253,65 – R2 247,20 = R6,45

18
4.7 b) 10,47%

EAR = (1 + i/m)m – 1

= (1 + 0,1/12)12 – 1

= (1,008333)12 – 1

= 10,47%

Calculator solution:

12 2ndF EFF 10 = 10,47%

4.8 b) R10 000

Calculator solution:

Enter 4 10 ±R500 R17 194

n i PV PMT FV

Solve for R10 158,80

4.9 b) R6 218

Calculator solution:

Enter 20×12=240 14/12=1,1667 R500 000

n i PV PMT FV

Solve for R6 217,60

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4.10 b) R5 776

AMRT R5 775,94

4.11 b) R442

AMRT R441,66

4.12 d) R494 639

AMRT R494 639,38

4.13 d) R49 135

Calculator solution:

Enter 4×12= 48 15/12=1,25 ±R950

n I PV PMT FV

Solve for R34 134,90

Therefore, R34 134,90 + R15 000 = R49 134,90

20
4.14 c) R27 330

Calculator solution:

Enter 5 15 ±R4 000

n i PV PMT FV

Solve for R26 969,53

Therefore, R26 969,53 – R10 000 = R16 969,53

Enter 5 10 R16 969,53

4.15 a) R1 000
n i PV PMT FV
Calculator solution;

Solve for R27 329,60

Enter 4×4=16 12/4=3 R20 157

n i PV PMT FV

Solve for R1 000

4.16 d) R600 000

PV = Cash flow (CF1)/(i – g)

= 60 000/(0,20 – 0,10)

= 60 000/0,10

= R600 000

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4.17 c) 7,46%

Calculator solution:
(negative R1,20; otherwise error message)

Enter 4 –R1,20 R1,60

n i PV PMT FV

Solve for 7,46%

4.18 d) 13,6%

Effective interest rate = Interest .

Borrowed amount – Interest

= R1 200 .
R10 000 – R1 200

= 13,64%

4.19 c) R67 800

Calculator solution:

Enter 10 12 ±R12 000

n i PV PMT FV

Solve for R67 802,67

22
4.20 c) R41 600

Calculator solution:

Enter 20 12 R3 000 000

n i PV PMT FV

Solve for R41 636,34

Solutions to longer questions

LQ 4.1

Calculator solutions:

Enter 24 14/12 = 1,6667 ±R7 500

n i PV PMT FV

Solve for R360,10

Enter 36 14/12 = 1,6667 ±R7 500

n i PV PMT FV

Solve for R256,33

Enter 48 14/12 = 1,6667 ±R7 500

n i PV PMT FV

Solve for R204,95

23
LQ 4.2

Calculator solution:

Set the calculator at BGN.

Enter 36 16,5%/12 = 1,375% ±R150 000

n i PV PMT FV

LQ 4.3Solve for R5 238,63

Calculator solution:

Enter 5×2=10 16/2 = 8 R100 000

n i PV PMT FV

Solve for R14 902,95

LQ 4.4

Calculator solution:

The answer works out to 88,76 days if you use all the digits when calculating 9,95/360
(i=0,02763888), but the answer is 82 days if i = 0,03 is used.

Enter 9,95/360 = 0,03 ±R150 000 R153 725

n I PV PMT FV

Solve for 82 days

24
LQ 4.5

PV = R80 000 – (R80 000 x 0,1)

= R80 000 – R8 000
= R72 000

Calculator solution:

Enter 36 13,5%/12=1,125 R72 000

n i PV PMT FV

Solve for R2 443,34

LQ 4.6

Calculator solution:

Enter 4×12=48 13,5/12 = 1,125 ± R169 000 R4 000

n i PV PMT FV

Solve for R36 388,65

LQ 4.7

Calculator solution:

Enter 30 20 R30 000

n i PV PMT FV

Solve for R149 368,09

R150 000 today is preferable, since it is more than R149 368,09.

25
LQ 4.8

Calculator solution:

Enter 5×2=10 14/2 = 7 ± R10 000 (R10 000 not R100 000)

n I PV PMT FV

Solve for R1 423,77

LQ 4.9

PV = Cash flow (CF1) ÷ (i – g)

= R50 000 ÷ (25% – 12%)
= R50 000 ÷ 0,13
= R384 615,38

LQ 4.10

a)

Calculator solution:

Enter 30 11 R200 000

n I PV PMT FV

Solve for R1 738 758,52

b)

Calculator solution:

Enter 20 9 R1 738 758,52

n I PV PMT FV

26
Solve for R310 248,23
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