Time Value Of

Money Analysis
KWANGTUNG COMMERCIAL BANK
Alvenda, Fariyane & Nabila
a. Draw Timelines for
1. Time line for a $100 lump sum cash flow at the end of the year 2
%i 1 2 years
Lump Sum
0 $100

2. an ordinary anuity of $100 per year for 3 years

0 %i 1 2 3 years
Annuity
$100 $100 $100

0
3. An uneven cash flow stream of -$50, $100, $75, and $50 at the end of years 0
through 3
Uneven cash 0 %i 1 2 3 years
flow stream $75 $50
-$50 $100
b.
1. What’s the future value of $100 after 3 years if it earns 4%, annual
compounding?
PV = $100 n = 3 years i = 4% Newnan, Donald G., “Engineering Economic Analysis”,

FV = $100 * (F/P, i, n)
= $100 * 1,125
= $112,5
Jika menggunakan excel
=FV(rate, nper, pmt, pv)
=FV(4%, 3, 0, 100)
What’s the present value of $100 to be received in 3
years if the interest rate is 4%, annual compounding?

FV = $100 n = 3 years i = 4%
PV = $100 * (P/F, i, n)
= $100 * 0,889
= $889
 c. What annual interest rate would cause $100 to grow
to $119.10 in 3 years
 
PV = $ 100 FV = $119,10 n = 3 years i=?

PV = $119,10 * (P/F, i, n)
(P/F, i, n) =
= 0,84
dengan melihat tabel E-2, dapat diketahui jika periode = 3 tahun,
interest factor = 0.84 maka didapat i = 6%
  
FV = PV * (F/P, i, n)
119,10 = 100 * (F/P, i, n)
(P/F, i, n)=
= 1,191
dengan melihat tabel E-1, dapat diketahui jika periode = 3 tahun,
interest factor = 1,191
maka didapat i = 6%
d. If a company’s sales are growing at a rate of 10%
annualy, how long will it take sales to double?
  = 2 PV
FV

Jadi dengan interest 10%, dibutuhkan waktu 7.23 tahun

 e. What’s the difference between an ordinary annuity
and an annuity due? What type of annuity is shown
here? How would you change it to the other type of
annuity?

0 1 2 3
Ordinary Annuity
0 $100 $100 $100
Answer :
Ordinary Annuity, adalah Pembayaran yang dilakukan disetiap akhir
periode. Sementara Annuity due, pembayarannya dilakukan disetiap
awal periode.
0 1 2 3
Annuity Due
100 100 100
 0 1 2 3

f. 0 $100 $100 $100

1. What is the FV of a 3 year, $100 ordinary annuity if the annual

interest rate is 4%?
FV = PMT * (F/A,i,n)
= 100 * 3,122
= $ 312,2
2. What is its present value?
PV = PMT * (P/A,i,n)
= 100 * 2,775
= $ 277,5
   What would the FV & PV be if it was an annuity due?
3.
FVA due = FVA ordinary (1 + i)
= 312,2 (1 + 0,04)
= 312,2 (1.04)
= $ 324,688
PV due = = 266,827
g. A 5-year $100 ordinary annuity has an annual interest
rate of 4%
1.What is its present value?
PV = 100 * (P/A, i, n)
= 100 * (P/A, 4%, 5)
= 100 * 4,452
= $ 445,2
2. What would the present value be if it was a 10 year annuity?
PV = 100 * (P/A, 4%, 10)
= 100 * 8,111
= $ 811,1
   What would the present value be if it was a 25 year annuity?
3.
PV = 100 * (P/A, 4%, 25)
= 100 * 15,022
= $ 1502,2
4. What would the present value be if it was a perpetuity?
PV = = $2500
h. A 20 year old student want to save 5% a day for her
retirement. Everyday she places %5 in a drawer. At the end of
each year, she invest the accumulated savings ($1,825) in a
brokerage account with an expected annual return of 8%.
  If she keeps saving in this manner, how much will she have
1.
accumulated at age 65?
n = 45 I = 8% A = 1.825
= PMT
= 1825
= $705372,751
h. A 20 year old student want to save 5% a day for her
retirement. Everyday she places 5% in a drawer. At the
end of each year, she invest the accumulated savings
($1,825) in a brokerage account with an expected
annual return of 8%.
  n = 65 – 40 = 25
2. I=8%  
3. n = 25 FVA = $705.372,751 I = 8%
= PMT FVA = PMT *
PMT =
= 1825
964863,8
= $1334,18
i. What is the present value of the following uneven cash flow
stream? The annual interest rate is 4%
0 1 2 3 4
0 $100 $300 $300 -$50

PV = 96.15 + 277.37 + 266.69 + (-42.74) = 597.47

j.1 Will the future value be larger or smaller if we compound an
initial amount more often than annually (e.g semiannually,
holding the stated(nominal) rate constant)

Future value akan lebih besar jika menggunakan semiannually,

karena interest akan lebih sering dibayar
j.2 Define the stated (quoted or nominal) rate, the
periodic rate, the EAR

Stated/quoted/nominal rate = Jika suku bunga dilipatgandakan lebih dari 1 kali

selama setahun, suku bunga yang dilipatgandakan

tidak dapat masuk ke akun kita

Periodic rate = sama halnya dengan nominal rate. Jika selama
setahun diberikan i = 10% & dilipatgandakan setiap 4
bulan sekali, maka suku bunga yang diterima setiap 4
bulan adalah 2.5%
EAR/EFF = suku bunga yang dilipatgandakan masuk ke akun kita
 What is the EAR corresponding to nominal rate of 4%
compounded semiannually? Compounded quarterly?
Compounded daily
   

= 0.0406
= 0.0404
What is the EAR corresponding to nominal rate of 4%
compounded semiannually? Compounded quarterly?
Compounded daily
 

= 1.041
What is the future value of 100 after 3 years under 4%
semiannual compounding? Quarterly compunding?
 Under semiannual compounding
PV = $100, m=2, n=3, iNOM = 4%

Under quarterly compounding

PV = $100, m=4, n=3, iNOM = 4%
When will the EAR equal the
nominal rate?
Jika menggunakan annual compounding maka nominal rate = EAR
Ilustrasi soal ada di halaman 183, 5-16 Comparing Interest Rates
 What is the value at the end of year 3 of the following
cash flow stream if interest is 4% compounded
semiannually
0 2 4 6
 
𝑚𝑛 4
iNOM 0.04
[ ] [ ]
0 $100 $100 $100

100 1+ =100 1+ =108.24

𝑚 2
  𝑚𝑛 2
iNOM 0.04
FV = 108.24 + 104.04 +100
= 312.28 [ ] [ ]
100 1+
𝑚
=100 1+ =104.04
2
 What is the PV
0 2 4 6

0 $100 $100 $100

  100 100
𝑚𝑛
= 6
=88.797
i NOM 0.04
[ 1+
𝑚 ] [ 1+
2 ]
  100 100
𝑚𝑛
= 4
=92.385
i NOM 0.04
[ 1+
𝑚 ] [ 1+
2 ]
  100 100 PV = 88.797 + 92.385 + 96.117
𝑚𝑛
= 2
=96.117
i NOM 0.04 = 277.299
[ 1+
𝑚 ] [ 1+
2 ]
What would be wrong with your answer if you used the
 
nominal rate 4%, rather than the EAR or the periodic
rate, /2=4%/2=2%, to solve the problem
• Jika
  menghitung FV dengan /2=2%, PMT = 100, n = 3
FV = PMT (F/A,i,n)=100 * 3.060 = 306
• Jika menghitung FV dengan EAR atau periodic rate, sesuai perhitungan di
atas, FV = 312.28
• Terdapat selisih = 312.28-306 = 6.28

• Jika menghitung PV dengan /2=2%, PMT = 100, n = 3

PV = PMT (P/A,i,n)=100 * 2.884 = 288.4
• Jika menghitung PV dengan EAR atau periodic rate, sesuai perhitungan di
atas, PV = 277.29
• Terdapat selisih = 288.4-277.29 = 11.11
Construct an amortization schedule for a $1000, 4%
annual interest loan with three equal installments
 
0 4% 1 2 3

$1000 PMT PMT PMT

With calculator finanncial

Period Beginning balance Payment Interest Payment of principal Finding Balance
1 $1000 360,35 0,04*$1000 = $40 360,35-40 = 320,35 1000-320,35=
679,65
2 $679,65 360,35 27,186 333,164 346,49
3 $346,49 360,35 13,86 346,49 0
What is the annual interest expense for the borrower and
the annual interest income for the lender during year 2

Komponen pendapatan suku bunga (interest income) adalah biaya

yang dapat mengurangi penghasilan bruto dan penghasilan kena
pajak bagi kreditur (lender). Jadi interest expense & interest
income pada tahun kedua adalah 27,186