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MGT201 Assignment

The document outlines the future value (FV) calculations for an investment of Rs. 800,000 at an interest rate of 15% over different time periods and compounding methods. It shows that FV increases with both semi-annual compounding and a longer investment period, with the latter having a more significant impact. The analysis concludes that extending the time period of investment yields greater future value due to the effects of compound interest.

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3 views2 pages

MGT201 Assignment

The document outlines the future value (FV) calculations for an investment of Rs. 800,000 at an interest rate of 15% over different time periods and compounding methods. It shows that FV increases with both semi-annual compounding and a longer investment period, with the latter having a more significant impact. The analysis concludes that extending the time period of investment yields greater future value due to the effects of compound interest.

Uploaded by

smartshakeel88
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

1.

Future Value Calculation

Formula:

F V = PV x (1 + i)n

Where:
PV = 800,000
i = 15% = 0.15
n = 5 years

FV =800,000 ¿FV =800,000 × 2.011357

FV = Rs. 1,609,086 (approx.)

F V = PV x (1 + (i / m) m x n

2 (A): Semi-Annual Compounding

Formula:

FV =PV ¿

Where:
PV = 800,000
i = 0.15
n = 2 (semi-annual)
t=5

FV =800,000 ¿FV =800,000 ¿FV =800,000 × 2.061032

FV = Rs. 1,648,826 (approx.)

2 (B): Time Period = 10 Years

Formula:

F V = PV x (1 + i)n
Where:
n = 10

FV =800,000 ¿FV =800,000 × 4.045558

FV = Rs. 3,236,446 (approx.)

Change in Element Impact on future value


(increases/decreases/remains the same)
The interest rate has changed to 15% Increases
compounded semi annually
The time period of investment changes to 10 Increases
years

The change in time period (n) has a bigger effect on the future value.

This is because when the time period increases, the investment earns interest for a longer
duration, and also the interest keeps adding in original amount and earn more interest (on
principal and previous accumulated interest value), which increase the total value.

Although semi-annual compounding also increases the future value, its impact is smaller
compared to increasing the time period.

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