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Time is money. If you put your money in the bank, you gain interest. If you borrow money from a bank or money lender, you need to pay interest. If you have $10,000 at the beginning of this year, you put in the bank that will give you 1% interest per year; you will get $10,100 at the beginning of next year. This means that your money now has bigger value than the same amount of money in the future.
The tutorial below contains the summary of most useful financial analysis.
Let is the amount of money you have at present and is the amount of money you have in the future. Let be the interest rate per year and is the total number of year you invested your money.
If you invest your money for a year, you have
If you invest your money for 2 years, you have
If you invest your money for years, you have compounding formula
Of course if you already get the money that you invested years ago at the same rate of interest, you can also calculate how much you money was before by discounting formula:
Suppose you know the amount of money at present and future, and you want to know how much the interest rate is, you may use this formula
If you would like to know the periods (how many years) you need to wait to get a certain amount in the future, the following formula may help:
Suppose you want to take some loan to the bank or money lender for your project or to buy car or house. You receive your loan now and then you need to pay the principal of the loan plus interest for years. Starting from next year, you need to pay amount of money every year. How much your annuity payment is? Formula below may help you:
Some insurance company may ask you to pay every year certain amount of money for years and in the future they will give you big amount of money .
For the project that you or developers or government do, at least you need to calculate whether that project is feasible financially and economically. Since the value of money is changing over time, we need the same basis to make the calculation equivalent. You may convert all the money as present value, or as future value, or as annuity. MS Excel functions for financial analysis below are the discrete compounding factor table converter below to help you.
Table Summary of Financial Converter
Preferable reference for this tutorial is
Teknomo, Kardi (2006) Tutorial on Feasibility Study. http://people.revoledu.com/kardi/tutorial/What-If-Analysis/index.html
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