8Chapter 3 FutureValue_PresentValue

8Chapter 3 FutureValue_PresentValue - Future and Present...

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Click to edit Master subtitle style 4/18/11 Future and Present Value Readings: Zagorsky Chapter 3
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4/18/11 Introduction Have you ever paid or thought about paying money to speed something up? EZ-Pass Shaq burgers Have you ever paid or thought about paying to slow something down?
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4/18/11 Introduction Finance is the part of economics that studies: How stock/bond/money markets work. How people, business and governments think about and handle risk. How people, business and governments
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4/18/11 Present & Future Value Present value is the amount of money today that is equivalent to a given amount of money in the future . Future value is how much a given amount of money today is worth in the future . Why do we care? Which would you rather have $1,000 today? Or $1,000 when you retire?
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4/18/11 2 Key Adjustment When you have money from different time periods compare their sums using present value. 2 key formulas depend on r the interest rate (example 5%) N number of years (example 15 years) $$ is the amount of money Present value of getting $$ in N years is: $$ / (1 + r)N More important formula
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4/18/11 Present Value Example How much would you pay for money today instead of getting it in the future? r the interest rate is 3% N number of years is 10 years X amount of money is $250 Instead of getting $250 ten years from now that sum is worth currently. X / (1 + r)N $250 / (1.03)10 o
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4/18/11 Future value Example If you have $300 today and the interest rate is 2% then in 6 years you will have: $$ x (1 + r)N $300 x (1.02)6 o $337
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4/18/11 Why Do You Care? In your own life present value is
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8Chapter 3 FutureValue_PresentValue - Future and Present...

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