Page 33 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes

Notes See the compound value for one rupee Table for year 20 and at 3 per cent interest
rate.
Illustration 13 (Quarterly compounding)

Suppose a firm deposits ` 50 lakhs at the end of each year, for 4 years at the rate of 6 per cent
interest and compounding is done on a quarterly basis. What is the compound value at the end
th
of the 4 year.
Solution: 44
×
⎛
FV = ` 50,000,000 1 + 0.06 ⎞ ⎟
⎜
4 ⎝ 4 ⎠
= ` 50,00,000 [FV1F ]
3y….8y
= ` 50,00,000 × 1.267 = ` 63,35,000
2.6.2 Calculation of the Compound Growth Rate

Compound growth rate can be calculated with the following formula :
n
g = V (1 + r) = V
r o n
where,
g = Growth rate in percentage.
r
V = Variable for which the growth rate is needed (i.e., sales, revenue,
o
dividend at the end of year ‘0’).
V = Variable value (amount) at the end of year ‘n’.
n
(1 + r) n = Growth rate.
Illustration 14
From the following dividend data of a company, calculate compound rate of growth for period
(1998 – 2003).
Year 1998 1999 2000 2001 2002 2003
Dividend per share (`) 21 22 25 26 28 31

Solution:
21 (1 + r) =31
5
(1 + r) 5 = 31 / 21 = 1.476

Notes See the compound value one rupee Table for 5 years (total years – one year) till you
find the closest value to the compound factor, after finding the closest value, see first
above it to get the growth rate.

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