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MGMT310_lecture5

# MGMT310_lecture5 - Last Lasttimewediscussed Time...

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Time value of money Would you prefer \$1000 today, or one year from today? Time value of \$\$: one dollar today is worth more than one dollar tomorrow Suppose a one year CD pays an annual interest rate of 2%. If you invested \$1000 in this CD, how much would you have in one year? ^^ this is referred to as the Future Value (FV) of \$1000 invested for one year at an annual rate of 2%.
Simple vs. compound interest Let’s say you put \$1000 in a savings account that pays 3% per year. If you pulled out the \$20 interest earned each year (and left it in your mattress), how much would you have in 5 years? In 50 years? If you left in the accumulated interest to reinvest, how much would you have in 5 years? In 50 years?

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Simple vs. compound interest Principal \$1000 Rate 3% Period 0 1 2 3 10 20 50 100 Period 0 1 10 Simple 1000 1030 1060.00 1090.00 1,300.00 1,600.00 2,500.00 4,000.00 Compound 1000 1030 1060.90 1092.73 1,343.92 1,806.11 4,383.91 19,218.63
Simple vs. compound interest If you pull out the interest earned each period, then you only earn interest on the original amount Simple interest

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MGMT310_lecture5 - Last Lasttimewediscussed Time...

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