This preview shows page 1. Sign up to view the full content.
Unformatted text preview: Variable Definitions Present value (PV) = cash flow at beginning of investment period (not always today). Future value (FV) = cash flow at end of investment period (not always in the future). Interest rate (r) = percentage return per period. Number of periods (t) = total amount of time that money was invested. Ex. 4: Simple Interest You invest $100 in a savings account earning 10% in simple interest. How much money is in your account after 1 year? 2 years? 5 years? 10 years? FV 1 = PV(1+rt) = 100(1+0.101) = $110 FV 2 = PV(1+rt) = 100(1+0.102) = $120 FV 5 = PV(1+rt) = 100(1+0.105) = $150 FV 10 = PV(1+rt) = 100(1+0.1010) = $200...
View Full Document
- Spring '09