ACCT CH9.3.jpeg - III PRESENT VALUE CONCEPTS The Time Value...

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Unformatted text preview: III. PRESENT VALUE CONCEPTS: The Time Value of Money (Use for Long-Term Notes) The value of money changes over time because money can earn interest. A. Two ways to calculate interest: @imple Interest - interest accrued over time on principle only Example: You invest $1, 000 for 3 years earning 9% simple interest. How much will you have at the end of three years? ‘IT- I =7 1000 x.o¢r:.’flO mt yr. 2 9> [000 x.oq:$‘10 ml Yfi3-‘> 1000x,0‘1:w 5270;,” +1000 =‘ 123% inf @ Compound Interest - Princ. + Accumulated Interest] earns interest in future. Example: You invest $1,000 for 3 years earning 9% interest, compounded annually. What is your investment worth at the end of three years? ‘lr- 1'7" lam/v.04 :‘Wml- €21” c934 yr. z=7 tow/1.061 =al‘i’ini- EEO yf. 357113501506! :10? Vn‘l' +1175, 12.95 Example: You need $1,295 to pay off your new computer at the end of three years. How much do you need to invest today at 9% interest. compounded annually? PV of$l 3—— 7314.}, 1" ‘ \lrz yrs ———+-—l-—l—— Fl/ 12415 5.31%:sz - X .772_Z;\3‘: l :) ‘PV [000 (1*1)” <;/ W W: m/ Pv:21245[fl———-W, :WX 1722:1000 ...
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