Chapter2 - Time Value of Money 1. Cash Flow Diagram (up...

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Time Value of Money Time Value of Money 1. Cash Flow Diagram ( up arrow is inflow or plus, down arrow is outflow or minus ) 2. Inflow / Outflow 3. P.V. 4. F.V. 5. Interest or Discount Rate (I) 6. N = number of periods or years 7. a = annuity, payment (pmt)
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Time Value of Money Time Value of Money $110 = FV 10% interest 1 year $100 = PV $100 : Present Value = PV = P $110 : Future Value = FV = F 10% : Interest rate or discount rate = i 1 year : number of periods = n
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Time Value of Money Time Value of Money 50 50 50 50 1 2 3 4 $50 : annuity or payment = pmt =pymt
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Time Value of Money Time Value of Money 1 2 3 4 5 100 100 100 100 200 Is this an annuity? No No , because the payments are not of the same amount. Payments should be equal in every period for annuity. (Period 1-3) is annuity (Period 4-5) is not.
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Time Value of Money Time Value of Money Notation Given Find Equation Book Le Table P F F n = P(1+i) n P[FVIF] P[F/P] A-3 F P P n = F[1/(1+i) n ] F[PVIF] F[P/F] A-1 a[ (1+i) n -1 ]
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Time Value of Money Time Value of Money Notation Given Find Equation Book Le Table a[1-1/(1+i) n ] a P P= i a[PVIFA] a(P/a) A-2 i 1 P a a=P[1-1/(1+i) n ] P[PVIFA] P(a/P)
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Time Value of Money Time Value of Money Example: FV = ? 10% N = 1 PV = 100 PV = -100 i = 10% N = 1 FV = ? FV = PV ( 1 + i ) 1 = 100 ( 1 + 0.1 ) 1 = 110
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Time Value of Money Time Value of Money Example: n=2 Years Given P, Find F F = ? 10% 1 n = 2 2 100 F = 100 ( 1 + 0.10) 2 =P(1+i) 2
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Time Value of Money Time Value of Money F n = P (1+i) n (1+i) n = F/P = FVIF F n = P[F/P] = P[FVIF]
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Fin362 LE 10 Time Value of Money Time Value of Money Notation Given Find Equation Book Le Table P F F n = P(1+i) n P[FVIF] P[F/P] A-3 F P P n = F[1/(1+i) n ] F[PVIF] F[P/F] A-1 a[ (1+i) n -1 ]
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Time Value of Money Time Value of Money N 10% Given P, find F: INPUTS I/YR FV PMT PV OUTPUT 2 -100 121
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Time Value of Money Time Value of Money Example: F n =20 i =10% PV=100,000 PV= - 100,000 n=20 i=10% FV=?
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Time Value of Money Example: F = ? 8%
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This note was uploaded on 02/26/2009 for the course FIN 300 taught by Professor Cindychen during the Spring '07 term at CSU Long Beach.

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Chapter2 - Time Value of Money 1. Cash Flow Diagram (up...

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