This
** preview**
has intentionally

**sections.**

*blurred***to view the full version.**

*Sign up**This preview shows
pages
1–3. Sign up
to
view the full content.*

01/18/2010 1
st
Hour
Definitions:
PV= Present Value
FV= Future Value
PMT= Payment
N= # of time periods
i= interest rate, discount rate, compounding rate
CF
T
= Cash flow at period T
Time Value of Money- allows you to take a cash flow at one point in time and convert it
to an equivalent value at another point in time.
FVIF
i,N
= Future Value interest factor for single value
PVIF
i,N
= Present Value interest factor for single value
FVIFA
i,N
= Future Value interest factor for regular annuities
PVIFA
i,N
= Present Value interest factor for regular annuities
FV
N
=[PV][1+i]
N
FVIF
i,N
=[1+i]
N
FV
N
= [PV] [FVIF
i,N
]
PV
N
=[FV][1/(1+i)]
N
PVIF
i,N
=[1/(1+i)]
N
PV
N
=[FV][PVIF]
Simple interest doesn’t take into account compounding effect of interest-on-interest.
(1+i): The value of 1 maintains original amount. Invest early to capitalize on power of
compounding. Make sure calculator is set to one period per year.
N=number of periods
I/Yr=interest rate
per period
PV=Present value
PMT=payment
per period
FV=Future value

This
** preview**
has intentionally

FV increases with # of compounding periods and higher rates of return. PV and FV are
reciprocal functions. PV decreases with # of compounding periods and higher rates of
return.
When using timelines to set up time value of money problems, remember that the tick
marks are at the END of periods. Time 0 is today; Time 1 is the end of period
1(beginning of period 2) and so on.
01/18/2010 2nd Hour
A regular annuity simply means that the payments are at the end of a period.
An annuity due simply means that the payments are at the beginning of a period.
A complex cash flow means that the payments are not a single or lump sum or that
the payments are not an annuity. A mixture of uneven cash flows and even negative
cash flows possibly.
To find the future value of a complex cash flow, take each individual cash flow
and compound it forward to the last period, then add the future values together.
To find the present value of a complex cash flow, take each individual cash flow

This is the end of the preview. Sign up
to
access the rest of the document.

Ask a homework question
- tutors are online