Time Value of Money কি?
It means that the value of money changes with the changes of time.
Future Value (FV) কিভাবে হিসাব করতে হয়?
Future Value (FV) Formula:
FV= PV (1+i)^n
[Where, PV= Present Value, i= Interest Rate, n= Number of Years]
Example: What will be the future value at the end of the 5 years of Taka 500, considering 10% rate of interest?
Solution: Applying the above formula
FV= PV (1+i)^n
= 500 (1+ 0.10)^5
= 500* 1.61051
= 805.26
Present Value (PV) কিভাবে হিসাব করতে হয়?
Present Value (PV) Formula:
PV = FV/ (1+i)^n
[Where, FV= Future Value, i= Interest Rate, n= Number of Years]
Example: What will be the present value of Taka 500, to be received at the end of the 5 years, considering 10% rate of interest?
Solution: Applying the above formula
PV = FV/ (1+i)^n
= 500/ (1+ 0.10)^5
= 500/ 1.61051
= 340.46
Effective Annual Rate of Interest (EAR) কিভাবে হিসাব করতে হয়?
Effective Annual Rate of Interest (EAR) Formula:
EAR = {(1+i/m)^m}-1
[Where, i= Nominal Interest Rate, m= Number of Compounding per year]
Example: What will be the Effective Annual Rate of Interest (EAR) of 10% nominal interest rate, considering compounded monthly?
Solution: Applying the above formula
EAR = {(1+i/m)^m}-1
= {(1+0.10/12)^12}-1
= {(1+0.008333)^12}-1
= {(1.008333)^12}-1
= 1.104709- 1
= 0.104709
i.e 10.47%
