Time Value of Money
1$ today is worth more than 1$ in the future
3 main reasons:
o
risk
you may not receive that 1$ in the future
o
inflation
an increase in the general price level
o
opportunity cost
you can use the 1 dollar today
Types of Time Value Problems
future value (lump sum)
present value (lump sum)
annuities & loan payments
o
constant streams of cash flows
future value of annuities
