3aappendixc

3aappendixc - THIS IS ABOUT THE BASICS The Time Value of...

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Slide C-1 UCSB, Anderson The Time Value of Money/ Present Values Appendix C Slide C-2 UCSB, Anderson THIS IS ABOUT THE BASICS You should become familiar with the concept of present values and the basics of how they work using the tables. This is NOT intended to be a comprehensive course in business finance covered in 1 hour! Slide C-3 UCSB, Anderson CONCEPT #1 What is worth more: (A) $1 today OR (B) $1 One year from today? $1 today IF you invested that $1 for one year at only 3% interest compounding monthly, you would have $1.0304 at the end of the year! What would you rather have in one year…$1 or $1.0304? Slide C-4 UCSB, Anderson CONCEPT #2 The impact of compounding interest is EXPONENTIAL!!!
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Slide C-5 UCSB, Anderson Rate 10% Compounding Monthly Invested $1 NON-COMPOUNDING COMPOUNDING Year 1 $1.100 $1.105 Year 2 $1.200 $1.220 Year 3 $1.300 $1.348 Year 4 $1.400 $1.489 Year 5 $1.500 $1.645 Year 6 $1.600 $1.818 Year 7 $1.700 $2.008 Year 8 $1.800 $2.218 Year 9 $1.900 $2.450 Year 10 $2.000 $2.707 Year 11 $2.100 $2.991 Year 12 $2.200 $3.304 Year 13 $2.300 $3.650 Year 14 $2.400 $4.032 Year 15 $2.500 $4.454 Year 16 $2.600 $4.920 Year 17 $2.700 $5.436 Year 18 $2.800 $6.005 Year 19 $2.900 $6.633 Year 20 $3.000 $7.328 0.000 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 Y ear 1 e a r 3 r 5 Yea r 7 r 9 Ye r 11 Year 1 3 ea r 1 5 r 17 9 NON-COMPOUNDING COMPOUNDING Slide C-6 UCSB, Anderson Key Terminology z Present Value: Today’s value of money to be received in the future; z Future Value: Value of an amount known today which will be received/ paid in the future.
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This note was uploaded on 01/29/2010 for the course ECON 3A taught by Professor Loster during the Summer '07 term at UCSB.

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3aappendixc - THIS IS ABOUT THE BASICS The Time Value of...

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