CH2 - Chapter 2: Time Value of Money I pay you $100 now or...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 2: Time Value of Money I pay you $100 now or $100 in 4 years: your choice I pay you $100 now or “X” dollars in 4 years, where X = $150 X = $200 X = $250 X = $300 What does this experiment mean for: The Automated versus Manual production line decision? The one-storey versus two-storey decision?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Four Problem Types, based on F = P(1 + i) N Where P = principal, or present, amount (in $) F = future amount, with interest (in $) i = interest rate (in “per period”) N = number of periods Find F, given P, i, N Find i, given F, P, N Find N, given F, P, i Find P, given F, i, N
Background image of page 2
Example 2-1: With i = 8% per year, how much is owed on a loan of $500 at the end of 3 years? Example 2-2: I borrow $100 now and pay you $1000 four years from now. What is our implied interest rate? Example 2-3: How long will it take for a bank account balance to reach $2000, if $1500 is deposited now, and interest is at 3% per year ?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Find P, given F, i, N: relevant for “Present Worth Method” Example 2-4 : If I need $6500 in 4 years, how much should I deposit now in an account, with interest at 3% per year? Example 2-5
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 9

CH2 - Chapter 2: Time Value of Money I pay you $100 now or...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online