16 MODULE IV: TIME VALUE OF MONEY INTRODUCTION The time value of money analysis has many ranging from setting up schedules om loans to decisions about whether to invest in a particular financial instrument. First, let's define the following notations: I- the interest rate per period N the total number of payment periods in an annuity PMT the annuity payment made each period PV present value FV future value type-o or omiited for regular annuity 1 for annuity due guess your guess for what the rate will be Notes: 1. Make sure that you are consistent about your specifications for 1 f you and N. monthly payments on a three-year loan at 8 percent annual rate, use 0.75% (8%12) and (3*12) for 2. PMT and PV must be entered as a negative number. ure Value Formula FvN e Pv (1+)N FVO, N, PMT, PV, type) Excel: Example 1 If you deposit si,000 in a savings account that pays 8% interest compounded annually, how much will you receive 10 years from today? Answer: FV(0.08, 10, 0, -1000, 0) S2, 158.92 Example 2: Same as Example l except that interest rate is compounded quarterly. Answer: FV (0.02, 40, 0, -1000, 0) $2,208.04