Page 21 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning Rupesh Roshan Singh, Lovely Professional University

Notes Unit 2: Time Value of Money

CONTENTS
Objectives
Introduction

2.1 Meaning of Time Value of Money
2.2 Valuation Concepts or Techniques
2.3 Compound Value Concept
2.3.1 Multiple Compounding Periods
2.3.2 Future Value of Series of Cash Flows

2.3.3 Compound Sum of an Annuity
2.4 Discounting or Present Value Concept
2.4.1 Present Value of a Series of Cash Flows
2.4.2 Present Value of an Annuity
2.5 Valuation of Bonds or Debentures
2.6 Practical Implications of Compounding and Discounting Value Concepts
2.6.1 Variable Compounding Periods

2.6.2 Calculation of the Compound Growth Rate
2.6.3 Compounded/Future Value of Series of Cash Flows [Annuity]
2.6.4 Compound Value of Annuity (Even Cash Flows)
2.6.5 Compound Value of Annuity Due
2.7 Doubling Period
2.8 Effective Rate of Interest in Case of Doubling Period

2.9 Present Value
2.9.1 Present Value of a Series of Cash Flows
2.9.2 Present Value of Annuity Due
2.10 Effective vs Nominal Rate
2.11 Sinking Fund Factor
2.11.1 Present Value of Perpetuity

2.12 Loan Amortisation
2.12.1 Present Value of Growing Annuity
2.12.2 Shorter Discounting Periods
2.13 Summary
2.14 Keywords
2.15 Review Questions

2.16 Further Readings

16 LOVELY PROFESSIONAL UNIVERSITY