090912_NPV - The Concept of Net Present Value Lecture 2 12...

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The Concept of Net Present Value Lecture 2 12 September 2009
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Functions of money z Medium of exchange z Means of payment z Unit of account z Store of value Value of a good or service price Value of money = purchasing power
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Time value of money z $1 now is not the same as $1 in a week’s time, because money changes its value over time Inflation Growth of wealth ? z The time value of money is how much one unit of money is worthier today than it is tomorrow or at any other date in the future
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Definition of interest rate - 1 z An interest rate is the price a borrower pays for the use of money that he doesn’t own, and the return a lender receives for deferring his consumption by lending to the borrower. z Interest rates are normally expressed as a percentage over the period of one year. It is usually denoted as “r” or “i”.
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Definition of interest rate - 2 1 _ _ _ ... ... 1
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This note was uploaded on 10/12/2010 for the course BANKING AN 001 taught by Professor Bogdukevich during the Fall '10 term at London Business School.

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090912_NPV - The Concept of Net Present Value Lecture 2 12...

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