FINANCE Ch4

FINANCE Ch4 - Chapter 4 Introduction to Time Value of Money...

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1 Chapter 4 Introduction to Time Value of Money
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2 Chapter Outline: 4.1 Future Value and Compounding 4.2 Present Value and Discounting 4.3 More on PV and FV Key Concepts and Skills: Be able to compute the future value of an investment made today Be able to compute the present value of cash to be received at some future date Be able to compute the return on an investment Be able to compute the number of periods required for an investment to grow to certain amount given a growth rate Learn the “Rule of 72’s”
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3 Here is the Idea: Get $100 today or Get $100 in one year. Which is better? Obviously getting the $100 today is better. Why? If you want to buy something today, you can. If you want to buy something in one year: You can lend the $100 today for one year And have more than $100 in one year So if I won’t get the money for one year, I need to get more than $100 How much more? Talk about that in a soon!
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4 What we will do: Chapter 4: How much is a payment worth today (PV) if we get it sometime in the future (FV)? Given the FV, Calculate the PV What is a payment worth in the future (FV) if we make the payment today (PV)? Given the PV, Calculate the FV Chapter 5: What if there are a whole bunch of payments?
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The Notation: FV = PV(1+r) t OR PV = FV/(1+r) t FV = Future Value PV = Present Value r = The interest rate t = the number of periods (years) We can solve for each of these variables If we have the other 3. And talk about what the variables mean
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This note was uploaded on 10/08/2009 for the course BCOR 2200 taught by Professor Tomnelson during the Spring '08 term at Colorado.

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FINANCE Ch4 - Chapter 4 Introduction to Time Value of Money...

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