Title Unit 2.docx ✅

Example If PV = Rs. 5000, r = 4% per year which is payable annually and t = 4 years, find lump sum FV?                                          F Vt = P V (1 + r/n) t×n                               or,     F V4 = 5000 (1 + 0.04 /1) 4×1     [as n = 1]     or,     F V4 = 5000 (1 + 0.04) 4              or,     F V4 = 5000 (1.04) 4        or,    F V4 = 5000 × 1.1699 = Rs. 5849.50/- But, if the return is offered / payable more than one time rather than annually, when n>1, the given formula is to be adjusted as FV t = PV [1 + r/2] t×2 in which return is payable Semi - annually (n=2) FV t = Rs. 5858.50/- ii) Lump Sum Present Value (PV):- It is the required present worth (value) that makes given future value (amount) with cash flow during the given time horizon on the basis of given interest (discount) rate. So, as the given interest (discount) rate increases, the present worth (value) with cash flow decreases that can be calculated with the help of given formula like:- PV = FV t [1 / (1 + r/n)] t×n    Where, PV = Present value,  FV = Future Value,  r = discount rate payable annually,  t = Time horizon.   n = frequency (number) of return offered per year.