Time Value of Money

VALUATION CONCEPTS AND METHODS

Learning Objectives

 Understand the concept of time value of money

 Understand the concept of compounding and discounting
 Determine how to compute future value and present value
 Determine annuity and its types
 Provide methods on how to determine annuity payments, periods and
interest rates
 Determine how to compute future value and present value with uneven
cash flow
Time Value of Money

 The time value of money refers to the observation that it is better to

receive money sooner than later.
 Money that you have in hand today can be invested to earn a positive
rate of return, producing more money tomorrow.
 Thus, a dollar today is worth more than a dollar in the future.
Interest

 Interest is the very essence of time value of money

 It is the fee paid for having the use of money, earned by investors on
money that has been invested in interest bearing securities.
 Computed as a proportion of the principal, the period of time and
interest rate
Simple Interest

 It is the interest incurred only on the amount of principal that is

outstanding. Unpaid interest is not added to the principal, and interest
is not charged on unpaid interest.
 I=Pxrxt
Simple Interest

 The principal of a loan is $100,000. The annual interest rate is 6%. If

the entire amount remain outstanding for one full year, how much is
the simple interest? if outstanding for 5 years? if outstanding for 5
months?
Compounded Interest

 Interest is compounded at regular intervals.

 Interest that has accrued (incurred) and has not been paid by the
borrower is added to the outstanding principal at the end of each stated
period. Then the interest incurred for the next period is based on the
increased principal balance.
Compounded Interest

 I1= P0 x r x t
 P1 = P0 + I1
 I2 = P1 x r x t ; or
 I2 = (P0 + I1) x r x t ; or
 I2 = [P0 + (P0 x r x t)] x r x t ; therefore
 Pt = P x (1 + r)t
 Pn = P x (1 + r)n
Compounded Interest

 A $100,000 has been deposited in a bank that pays 6% interest per

annum. How much is the interest and principal after 1 year if it is
compounded annually? compounded quarterly? Compounded
monthly?
Intrinsic Value of the Firm
Time lines

0 1 2 3
i%

CF0 CF1 CF2 CF3

 Show the timing of cash flows.

 Tick marks occur at the end of periods, so Time 0 is today; Time 1 is
the end of the first period (year, month, etc.) or the beginning of the
second period.
Drawing time lines:
$100 lump sum due in 2 years;
$100 every year for 3 years
$100 lump sum due in 2 years
0 1 2
i%

100
$100 every year for 3 years
0 1 2 3
i%

100 100 100

Drawing time lines:
Uneven cash flow stream; CF0 = -$50,
CF1 = $100, CF2 = $75, and CF3 = $50

Uneven cash flow stream

0 1 2 3
i%

-50 100 75 50
Time lines

 Do time lines deal only with years, or could other periods be used?
 Set up a time line to illustrate the following situation: You currently
have $2,000 in a 3-year certificate of deposit (CD) that pays a
guaranteed 4% a)annually and b)semi-annually. You want to know
the value of the CD after 3 years.
What is the future value (FV) of an initial $100
after 3 years, if I/YR = 10%?

 Finding the FV of a cash flow or series of cash flows when

compound interest is applied is called compounding.
 FV can be solved by using the arithmetic, financial calculator, and
spreadsheet methods.

0 1 2 3
10%

100 FV = ?
Solving for FV:
The arithmetic method

 After 1 year:
 FV1 = PV ( 1 + i ) = $100 (1.10)
= $110.00
 After 2 years:
 FV2 = PV ( 1 + i )2 = $100 (1.10)2
=$121.00
 After 3 years:
 FV3 = PV ( 1 + i )3 = $100 (1.10)3
=$133.10
 After n years (general case):
 FVn = PV ( 1 + i )n
Solving for FV:
The calculator method
Solving for FV:
The calculator method

 Solves the general FV equation.

 Requires 4 inputs into calculator, and
will solve for the fifth. (Set to P/YR = 1
and END mode.)

INPUTS 3 10 -100 0
N I/YR PV PMT FV
OUTPUT 133.10
Future Value

 Suppose you currently have $2,000 and plan to purchase a 3-year

certificate of deposit (CD) that pays 4% interest, compounded
annually. How much will you have when the CD matures?
 How would your answer change if the interest rate were 5%, or 6%, or
20%?
What is the present value (PV) of $100 due
in 3 years, if I/YR = 10%?

 Finding the PV of a cash flow or series of cash flows when compound

interest is applied is called discounting (the reverse of compounding).
 The PV shows the value of cash flows in terms of today’s purchasing
power.

0 1 2 3
10%

PV = ? 100
Solving for PV

 Solve the general FV equation for PV:

 PV = FVn / ( 1 + i )n

 PV = FV3 / ( 1 + i )3
= $100 / ( 1.10 )3
= $75.13
Present Value

 How is the future value equation related to the present value equation?
 How does the present value of a future payment change as the time to
receipt is lengthened? As the interest rate increases?
Present Value

 Suppose a risk-free bond promises to pay $2,249.73 in 3 years. If the

going risk-free interest rate is 4%, how much is the bond worth today?
 How would your answer change if the bond matured in 5 rather than 3
years? If the risk-free interest rate is 6% rather than 4%, how much is
the 5-year bond worth today?
Finding Interest Rate, I

 Suppose you can buy a U.S. Treasury bond that makes no payments
until the bond matures 10 years from now, at which time it will pay
you $1,000.7 What interest rate would you earn if you bought this
bond for $585.43?
 What rate would you earn if you could buy the bond for $550? For
$600?
 Finding Interest Rate, I

TABLE 1. FUTURE VALUE FACTOR OF SINGLE SUM (FV OF 1)

Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 1.010 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 1.100 1.110 1.120 1.130 1.140 1.150 1.160 1.170 1.180 1.190 1.200
2 1.020 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.188 1.210 1.232 1.254 1.277 1.300 1.323 1.346 1.369 1.392 1.416 1.440
3 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.331 1.368 1.405 1.443 1.482 1.521 1.561 1.602 1.643 1.685 1.728
4 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1.464 1.518 1.574 1.630 1.689 1.749 1.811 1.874 1.939 2.005 2.074
5 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611 1.685 1.762 1.842 1.925 2.011 2.100 2.192 2.288 2.386 2.488
6 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 1.772 1.870 1.974 2.082 2.195 2.313 2.436 2.565 2.700 2.840 2.986
7 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.949 2.076 2.211 2.353 2.502 2.660 2.826 3.001 3.185 3.379 3.583
8 1.083 1.172 1.267 1.369 1.477 1.594 1.718 1.851 1.993 2.144 2.305 2.476 2.658 2.853 3.059 3.278 3.511 3.759 4.021 4.300
9 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358 2.558 2.773 3.004 3.252 3.518 3.803 4.108 4.435 4.785 5.160
10 1.105 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 2.594 2.839 3.106 3.395 3.707 4.046 4.411 4.807 5.234 5.695 6.192
11 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853 3.152 3.479 3.836 4.226 4.652 5.117 5.624 6.176 6.777 7.430
12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 3.138 3.498 3.896 4.335 4.818 5.350 5.936 6.580 7.288 8.064 8.916
13 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 3.883 4.363 4.898 5.492 6.153 6.886 7.699 8.599 9.596 10.699
14 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.797 4.310 4.887 5.535 6.261 7.076 7.988 9.007 10.147 11.420 12.839
15 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 4.785 5.474 6.254 7.138 8.137 9.266 10.539 11.974 13.590 15.407
16 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595 5.311 6.130 7.067 8.137 9.358 10.748 12.330 14.129 16.172 18.488
17 1.184 1.400 1.653 1.948 2.292 2.693 3.159 3.700 4.328 5.054 5.895 6.866 7.986 9.276 10.761 12.468 14.426 16.672 19.244 22.186
18 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560 6.544 7.690 9.024 10.575 12.375 14.463 16.879 19.673 22.901 26.623
19 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116 7.263 8.613 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948
20 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 6.727 8.062 9.646 11.523 13.743 16.367 19.461 23.106 27.393 32.429 38.338
Finding Number of Years, N

 How long would it take $1,000 to double if it were invested in a bank

that pays 6% per year?
 How long would it take if the rate were 10%?
 Finding Number of Years, N

TABLE 1. FUTURE VALUE FACTOR OF SINGLE SUM (FV OF 1)

Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 1.010 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 1.100 1.110 1.120 1.130 1.140 1.150 1.160 1.170 1.180 1.190 1.200
2 1.020 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.188 1.210 1.232 1.254 1.277 1.300 1.323 1.346 1.369 1.392 1.416 1.440
3 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.331 1.368 1.405 1.443 1.482 1.521 1.561 1.602 1.643 1.685 1.728
4 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1.464 1.518 1.574 1.630 1.689 1.749 1.811 1.874 1.939 2.005 2.074
5 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611 1.685 1.762 1.842 1.925 2.011 2.100 2.192 2.288 2.386 2.488
6 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 1.772 1.870 1.974 2.082 2.195 2.313 2.436 2.565 2.700 2.840 2.986
7 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.949 2.076 2.211 2.353 2.502 2.660 2.826 3.001 3.185 3.379 3.583
8 1.083 1.172 1.267 1.369 1.477 1.594 1.718 1.851 1.993 2.144 2.305 2.476 2.658 2.853 3.059 3.278 3.511 3.759 4.021 4.300
9 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358 2.558 2.773 3.004 3.252 3.518 3.803 4.108 4.435 4.785 5.160
10 1.105 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 2.594 2.839 3.106 3.395 3.707 4.046 4.411 4.807 5.234 5.695 6.192
11 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853 3.152 3.479 3.836 4.226 4.652 5.117 5.624 6.176 6.777 7.430
12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 3.138 3.498 3.896 4.335 4.818 5.350 5.936 6.580 7.288 8.064 8.916
13 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 3.883 4.363 4.898 5.492 6.153 6.886 7.699 8.599 9.596 10.699
14 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.797 4.310 4.887 5.535 6.261 7.076 7.988 9.007 10.147 11.420 12.839
15 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 4.785 5.474 6.254 7.138 8.137 9.266 10.539 11.974 13.590 15.407
16 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595 5.311 6.130 7.067 8.137 9.358 10.748 12.330 14.129 16.172 18.488
17 1.184 1.400 1.653 1.948 2.292 2.693 3.159 3.700 4.328 5.054 5.895 6.866 7.986 9.276 10.761 12.468 14.426 16.672 19.244 22.186
18 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560 6.544 7.690 9.024 10.575 12.375 14.463 16.879 19.673 22.901 26.623
19 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116 7.263 8.613 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948
20 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 6.727 8.062 9.646 11.523 13.743 16.367 19.461 23.106 27.393 32.429 38.338
Annuities

 Series of equal payments made in fixed intervals

 If payments occur at the end of each period, then we have an ordinary
(or deferred) annuity.
 If the payments are made at the beginning of each period, then we have
an annuity due.
What is the difference between an ordinary
annuity and an annuity due?

Ordinary Annuity

0 1 2 3
i%

PMT PMT PMT

Annuity Due
0 1 2 3
i%

PMT PMT PMT

What is the difference between an ordinary
annuity and an annuity due?

 What’s the difference between an ordinary annuity and an annuity

due?
 Why should you prefer to receive an annuity due with payments of
$10,000 per year for 10 years than an otherwise similar ordinary
annuity?
Solving for FV of OA

 Assume that you plan to buy a condo 5 years from now, and you
estimate that you can save $2,500 per year toward a down payment.
You plan to deposit the money in a bank that pays 4% interest, and you
will make the first deposit at the end of this year. How much will you
have after 5 years?
 How would your answer change if the bank’s interest rate were
increased to 6%, or decreased to 3%?

  ( 1+𝑖 )𝑛 −1
𝐹𝑉 𝑂𝐴 =𝑃 [ 𝑖 ]
Solving for FV of OA

 For an ordinary annuity with 5 annual payments of $100 and a 10%

interest rate, for how many years will the first payment earn interest,
and what is the compounded value of this payment at the end? Answer
this same question for the fifth payment.

  ( 1+𝑖 )𝑛 −1
𝐹𝑉 𝑂𝐴 = 𝑃 [ 𝑖 ]
Solving for FV of AD

 Assume that you plan to buy a condo 5 years from now and that you
need to save for a down payment. You plan to save $2,500 per year,
with the first payment being made immediately and deposited in a
bank that pays 4%. How much will you have after 5 years?

  ( 1+𝑖 )𝑛+1 − 1
𝐹𝑉 𝐴𝐷= 𝑃 {[ 𝑖 ] }− 1 𝑜𝑟 𝐹𝑉 𝐴𝐷= 𝐹𝑉 𝑂𝐴 (1+𝑖 )
Solving for FV of AD

 Why does an annuity due always have a higher future value than an
ordinary annuity? (dahil mas advance siya ng 1 period so it will earn
more interest)
 If you know the value of an ordinary annuity, explain why you could
find the value of the corresponding annuity due by multiplying by
(1+I).
Solving for PV of OA

 What is the PVA of an ordinary annuity with 10 payments of $100 if

the appropriate interest rate is 10%?
 What would the PVA be if the interest rate were 4%?
 What if the interest rate were 0%?
−𝑛
  1 − ( 1+𝑖 )
𝑃𝑉 𝑂𝐴 = 𝑃 [ 𝑖 ]
Solving for PV of AD

 What would the PVAs be if we were dealing with annuities due?

 10 payments of $100 and appropriate interest rate is 10%?
 What would the PVA be if the interest rate were 4%?
 What if the interest rate were 0%?

−(𝑛 −1 )
 
𝑃𝑉 𝐴𝐷= 𝑃
{[ 1− ( 1+ 𝑖 )
𝑖 ] }
+1 𝑜𝑟 𝑃𝑉 𝐴𝐷 = 𝑃𝑉 𝑂𝐴 ( 1+𝑖 )
Finding PMT

 Suppose you inherited $100,000 and invested it at 7% per year. How large of
a withdrawal could you make at the end of each of the next 10 years and end
up with zero?
 How would your answer change if you made withdrawals at the beginning of
each year?
Finding N

 If you had $100,000 that was invested at 7% and you wanted to withdraw
$10,000 at the end of each year, how long would your funds last?
 How long would they last if you earned 0%?
 How long would they last if you earned the 7% but limited your withdrawals
to $7,000 per year?
 PV FACTOR TABLE

TABLE 4. PRESENT VALUE FACTOR OF ORDINARY ANNUITY (PV OF OA)

Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812
19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870
Finding I

 Your rich uncle named you as the beneficiary of his life insurance policy. The
insurance company gives you a choice of $100,000 today or a 12-year annuity
of $12,000 at the end of each year. What rate of return is the insurance
company offering?
Perpetuity

 A consol, or perpetuity, is simply an annuity whose promised payments

extend out forever.
 What is the present value of a perpetuity that pays $1,000 per year,
beginning 1 year from now, if the appropriate interest rate is 5%?
 What would the value be if the annuity began its payments
immediately?
Uneven cash flow stream

 There are two important classes of uneven cash flows:

 (1) those in which the cash flow stream consists of a series of annuity
payments plus an additional final lump sum in Year N, and
 (2) all other uneven streams.
Uneven cash flow stream
What is the PV of this uneven cash
flow stream?

0 1 2 3 4
10%

100 300 300 -50

90.91
247.93
225.39
-34.15
530.08 = PV
Will the FV of a lump sum be larger or smaller if
compounded more often, holding the stated I%
constant?

 LARGER, the more frequently compounding occurs, interest is earned on

interest more often.
0 1 2 3
10%

100 133.10
Annually: FV3 = $100(1.10)3 = $133.10
0 1 2 3
0 1 2 3 4 5 6
5%

100 134.01
Semiannually: FV6 = $100(1.05)6 = $134.01
Classifications of interest rates

 Nominal rate (iNOM) – also called the quoted or state rate. An annual
rate that ignores compounding effects.
 i
NOM is stated in contracts.
 Periodic rate (iPER) – amount of interest charged each period, e.g.
monthly or quarterly.
 i
PER = iNOM / m, where m is the number of compounding periods per
year. m = 4 for quarterly and m = 12 for monthly compounding.
Classifications of interest rates

 Effective (or equivalent) annual rate (EAR = EFF%) – the annual rate
of interest actually being earned, taking into account compounding.
 EFF% for 10% semiannual investment

EFF% = ( 1 + iNOM / m )m - 1
= ( 1 + 0.10 / 2 )2 – 1 = 10.25%
 An investor would be indifferent between an investment offering a
10.25% annual return and one offering a 10% annual return,
compounded semiannually.
Why is it important to consider effective
rates of return?

 An investment with monthly payments is different from one with

quarterly payments. Must put each return on an EFF% basis to
compare rates of return. Must use EFF% for comparisons. See
following values of EFF% rates at various compounding levels.

EARANNUAL 10.00%
EARQUARTERLY 10.38%
EARMONTHLY 10.47%
EARDAILY (365) 10.52%
Can the effective rate ever be equal
to the nominal rate?

 Yes, but only if annual compounding is used, i.e., if m = 1.

 If m > 1, EFF% will always be greater than the nominal rate.
When is each rate used?

 iNOM written into contracts, quoted by banks and brokers. Not used
in calculations or shown on time lines.
 iPER Used in calculations and shown on time lines. If m = 1, iNOM =
iPER = EAR.
 EAR Used to compare returns on investments with different payments
per year. Used in calculations when annuity payments don’t match
compounding periods.