InvestmentPlanningWeek3_2

# InvestmentPlanningWeek3_2 - FSU Certificate in Financial...

• Test Prep
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FSU Certificate in Financial Planning Investment Planning © Florida State University Page 1 Lecture Title: Week 3: Time Value of Money Week 3: The Time Value of Money Introd uctio n Please turn to page 78 and read the last sentence of the first paragraph which reads "These adjustments may be expressed in more formal terms by modifying Equation 3.1 as follows:"… and then you see a gnarly algebraic formula. Those of you who hold a masters degree in mathematics from MIT and own a machine that calibrates the amount of toothpaste that comes out each time the tube is squeezed may feel more comfortable with the gnarly formula. The rest of us, you know, the ones that eat cheeseburgers, occasionally absentmindedly scratch ourselves in public and think "96 Tears" by 'Question Mark and the Mysterians' is one of the greatest songs of all time, we prefer the verbal explanation. Remember the formula page I flashed in the Introduction in Lecture 1? I wouldn't use that to line a bird cage for fear it would cause Tweety to have a cardiac arrest. Those of you who wish to learn by digesting formulas can find enough of them in the textbook to fill the buffet tables of a Golden Corral restaurant in Daytona Beach during Bikers Week. In my lecture notes you'll probably find only those that are absolutely necessary to learn. An attempt will be made to explain concepts and relationships in words. If that doesn't work for you, seriously, email me and I'll try to respond in algebraicese. Objectives The objectives of this lecture are to: 1. Explain why a dollar received tomorrow is not equal in value to a dollar received today. 2. Differentiate between compounding and discounting. 3. Distinguish among the future value of a dollar, the future value of an annuity, the present value of a dollar, and the present value of an annuity. 4. Solve problems concerning the time value of money.

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FSU Certificate in Financial Planning Investment Planning © Florida State University Page 2 Lecture Presentation In Chapter 3, Mayo does an excellent job of presenting the concepts of future value of money, present value of money, valuing annuity cash flows, compounding and discounting. Rather than repeat all the information he's given, I will help you learn to read a problem, recognize the situation and set up the calculation using a financial calculator. If you are stuck on any of the concepts, post your questions to the discussion board. By the way, everyone remember we're all in this life raft together, meaning that anyone who thinks they have an answer should respond to a posted question. If your answer needs further amplification, I'll chime in. I am inserting some slides for you to review to help summarize the information from the text. I'll throw in a couple of formulas for the MIT types.
FSU Certificate in Financial Planning Investment Planning © Florida State University Page 3

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FSU Certificate in Financial Planning Investment Planning

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• Spring '14

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