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

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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?

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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
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 ?

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

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