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Formula sheet/NISM Series X-A: Investment Adviser (Level 1)/Personal Financial Planning
[ PERSONAL FINANCIAL PLANNING ]

Time Value of Money: PV, FV, and Compounding Frequencies

Future Value(FV):FV=PV×[1+(r/m)]m×n\text{Future Value} (FV): FV = PV \times [ 1 + (r / m) ]^{m \times n}
Excel: =FV(r/m, m*n, 0, -PV)
Present Value(PV):PV=FV/[1+(r/m)]m×n=FV×[1+(r/m)]−m×n\text{Present Value} (PV): PV = FV / [ 1 + (r / m) ]^{m \times n} = FV \times [ 1 + (r / m) ]^{- m \times n}
Excel: =PV(r/m, m*n, 0, -FV)
Variables

PV: Principal / Present value; FV: Future accumulated sum; r: Nominal annual interest rate; m: Compounding frequency (1=Annual, 2=Semi-Annual, 4=Quarterly, 12=Monthly); n: Tenor in years.

Exam note

Higher compounding frequency increases the Effective Annual Rate (EAR): EAR = (1 + r/m)^m - 1.