Krajewski SN Supplement J

# Krajewski SN - Supplement J Financial Analysis A Time Value of Money 1 Underlying concept 2 Future value of an investment a Compounding interest b

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Supplement J Financial Analysis A. Time Value of Money 1. Underlying concept 2. Future value of an investment a. Compounding interest b. Future value of an investment c. Formula F = P( 1 +r) n where F = P = r = n = d. Application J.1: Future Value of an Investment An investment of \$500 will earn interest of 6%, compounded annually for 5 years. The future value is: F = P( 1 +r) n where P = r = n = F = 3. Present value of a future amount a. Present value of a future amount b. Discounting c. The general formula is: ( 29 1 n F P r = + d. Present value factors (pf) To find the present value of a future amount, write the above formula as: SN:J-1

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SN:J-2 Supplement J: Financial Analysis ( 29 1 1 n P F r = + Multiply F by the present value factor (pf). e. Application J.2: Present Value of a Future Amount An investment will be worth \$500 in 5 years. The interest rate is 6%. The present value is: ( 29 1 n F P r = + F = r = n = P = Solving instead using present value factor (pf) from the table:
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## This note was uploaded on 12/19/2009 for the course MANAGEMENT 00123 taught by Professor Ahmed during the Spring '09 term at Albany College of Pharmacy and Health Sciences.

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Krajewski SN - Supplement J Financial Analysis A Time Value of Money 1 Underlying concept 2 Future value of an investment a Compounding interest b

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