# 2 - Manhattan Island Sale Peter Minuit bought Manhattan...

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Manhattan Island Sale Peter Minuit bought Manhattan Island for \$24 in 1626. Was this a good deal?

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FINA1003 Corporate Finance Faculty of Business and Economics University of Hong Kong Dr. Tao Lin Chapter 5: The Time Value of Money
Topics Covered Calculate simple interest Calculate compound interest Calculate Present Value (PV) Calculate Future Value (FV) Calculate rate of return Calculate number of periods or the length of time needed to grow the investment

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Timeline t=0 t=1 t=2 t=3 t=4 Today End of the third year Beginning of the fourth year Unless otherwise stated, t = 0 represents today (the decision point). Unless otherwise stated, cash flows occur at the end of a time interval. Cash inflows are treated as positive amounts, while cash outflows are treated as negative amounts.
Basic Definitions Present Value earlier money on a time line Future Value later money on a time line Interest rate – “exchange rate” between earlier money and later money Discount rate Cost of capital Opportunity cost of capital Required return

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Some Basic Financial Principles A dollar today is worth more than a dollar tomorrow. A safe dollar is worth more than a risky one.
Future Values Future Value - later money on a time line. Amount to which an investment will grow after earning interest. Simple Interest - Interest earned only on the original investment. Compound Interest - Interest earned on both the initial principal and the interest reinvested from prior periods.

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Example - Simple Interest Interest earned at a rate of 10% for five years on a principal balance of \$100. Interest Earned Per Year = 100
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2 - Manhattan Island Sale Peter Minuit bought Manhattan...

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