Other Time Value of Money Situations - Business Finance - ثاني ثانوي

5.6 Other Time Value of Money Situations Key Term Non-annual compounding In addition to the four basic time value of money calculations, other situations exist related to future value and present value computations. 5.6a Uneven Amounts A person may not deposit an equal amount each year. These uneven cash flows will require that you calculate amounts individually. 5.6b Time Periods of Less Than a Year This chapter has only discussed time value of money activities involving full years, however, you will likely encounter situations consisting of less than a year. Link to digital lesson www.sen.edu 5.6c Non-annual Compounding Throughout the chapter, examples involved compounding that occurred only once a year. Compounding can and often does occur more frequently, such as twice a year (semi-annually) or every three months (quarterly). Non-annual compounding is payment of interest more frequently than once a year. In those situations, calculations need to be adjusted. Mau-anal compitiy Payment of interest more frequently than once a year 5.6d Loan Payments Calculations In addition to using time value of money for saving and investing growth, these calculations can determine loan payments. When borrowing an amount for a certain time period at a certain rate, a financial calculator, وزارة التعليم CHAPTER 5 Opportunity Costs and the Time Value of Money 209

A 210 Business Finance spreadsheet software, or an online app will allow you to compute the monthly repayment amount. The steps for the loan payment are similar to other present value calculations. For example, if you borrow SAR 1,000 with a 6% rate to be repaid in three equal payments at the end of the next three years, the payments will be SAR 374. This is calculated as follows: لك ليا Кемпель Einancial Calculator PV, LYN FV, CPT PMT lood PV 6Y 3 N. EV CPT PMT 374 Spreadsheet PMI (BATE, NPER, PV, FV TYPE] -PM 106,3,1000,0,0) = 374 Exercises Choose the correct answer. 1. Uneven amounts require individual calculations for the time value of money True/False 2. Earning interest more than once a year is called: a. non-annual compounding. b. annual compounding. c. discounting. d. an annuity.