The concept of time value of money can be classified into two major classifications:
Future value of money: It is further bifurcated into two different categories viz
Future value of single sum and Future value of an Annuity
Present value of money: It is further classified into two major classes viz
Present value of single sum and Present value of and Annuity
Future value of single sum:
If you deposit Rs.1,000 today in a Indian bank which pays 10% interest, find out the future value of money after 3 years.
Future value of Rs.1,000 after three years will be = Rs.1,000(1+.10)3
= Rs.1,000(1.331)= Rs. 1,331
Doubling period: It is the period which makes the investment as "Doubled"
There are two different approaches viz
Rule of 72
The initial amount of investment gets Doubled within which 72/I
I = Interest Rate of the investment
The amount of the investment is Rs.1,000. The annual rate of interest is 12%. When this amount of Rs.1,000 will get doubled ?
= 72/12 = 6 years
Rule of 69
The amount method is found to crude method in determining the doubling period which has its own limitations. The Rule of 69 was developed only in order to remove the bottlenecks associated with the early model of doubling period.
The rule of 69 is found to be a scientific method as well as rational method in determining the doubling period of the investment
The amount of the investment is Rs.1,000. The annual rate of interest is 11% When this amount of Rs 1,000 will get doubled?
=.35+ 69/11= 6.6227 yrs
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