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CHAPTER 6
61
FUTURE VALUE
If you deposit $10,000 in a bank account that pays 10 percent interest annually,
HOW MUCH MONEY WILL BE IN YOUR ACCOUNT AFTER 5 YEARS?
0
10%
1
2
3
4
5
PV = 10,000
FV
5
= ?
FV
5
=
$10,000(1.10)
5
=
$10,000(1.61051)
=
$16,105.10.
Alternatively, with a financial calculator enter the following:
N
=
5
I
=
10
PV
=
1000
and
PMT
=
0.
Solve for FV =
$16,105.10.
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PRESENT VALUE
WHAT IS THE PRESENT VALUE OF A SECURITY THAT PROMISES TO
PAY YOU $5,000 IN 20 YEARS?
ASSUME THAT YOU CAN EARN 7 PERCENT IF YOU WERE TO INVEST
IN OTHER SECURITIES OF EQUAL RISK.
0
7%
5
10
15
20
PV = ?
FV
20
= 5,000
With a financial calculator enter the following:
N
=
20,
I
=
7,
PMT
=
0,
and
FV
=
5000.
Solve for PV =
$1,292.10.
TIME FOR A LUMP
SUM TO DOUBLE
If you deposit money today into an account that pays 6.5 percent interest,
HOW LONG WILL IT TAKE FOR YOU TO DOUBLE YOUR MONEY?
0
6.5%
n
=
?
PV = 1
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This note was uploaded on 04/15/2008 for the course FIN 321 taught by Professor Kelley during the Spring '08 term at Loyola Maryland.
 Spring '08
 Kelley
 Finance, Future Value, Interest

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