Basic Tools of Finance

Basic Tools of Finance - The Basic Tools of Finance: Net...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
The Basic Tools of Finance: Net Present Value Present Value: the amount of money today that is equivalent to a given amount of money in the future Future Value: how much a given amount of money will be worth in the future Like we have to adjust money for inflation, we have to adjust money for the time frame (when it is received) FORMULAS: r the interest rate (example 5%) N number of years (example 15 years) X amount of money Present value of getting X $ in N years is: X / (1 + r) N Future value of X $ today in N years will be: X * (1 + r) N What value do you use for N? I owe you money today (N = 0) I owe you money 365 days from now (N = 1) I owe you money 1 year and 1 day from now (N = 1) I owe you money 2 years from now (N = 2) Example You are offered two jobs (each pays salary at beginning of the year) Job #1 pays a low training salary ($20,000) for 2 years but then in 3 rd year a high salary ($80,000). Total pay $120,000. Job #2 pays a medium salary ($40,000) for all 3 years.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/16/2008 for the course EC 102 taught by Professor Zagorsky during the Spring '08 term at BU.

Page1 / 2

Basic Tools of Finance - The Basic Tools of Finance: Net...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online