Present Value Calculation Basics

# Present Value Calculation Basics - Texas Instruments BA-II...

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Present Value Calculation Basics Present Value – earlier money on a timeline Future Value – later money on a timeline Interest rate – “exchange rate” between earlier money and later money Discount rate Cost of capital Opportunity cost of capital Required return Invest \$1000 for one year at 5% per year. What is the Future Value in one year? = 1050 Rules of Money 1. Money has no meaning unless you know when it occurs 2. Interest rates have no meaning unless you know when they are added Future Value Interest Factor (FVIF) = (1+r)^t t = time r = rate Effects of Compounding Simple Interest Compound Interest FV with simple interest = 1000 + 50 +50 = 1100 FV with compound interest = 1000 + 50 + 52.50 = 1102.50

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Unformatted text preview: Texas Instruments BA-II Plus • FV = Future Value • PV = Present Value • I/Y = period interest rate o P/Y must equal 1 for the I/Y to be the period rate o Interest is entered as a PERCENT, not a decimal • N = number of periods REMEMBER to clear the registers (2 nd [CLR TVM]) before each problem Calculator Keys 1. Set interest rate I/YR to periodic rate a. 2 nd (P/Y), 1, ENTER, (DOWN arrow) 2 nd [QUIT] 2. Set significant digits: a. 2 nd [FORMAT], 8, ENTER 2 nd [QUIT] 3. If LCD has BGN: a. 2 nd [BGN] 2 nd [SET] 2 nd [QUIT] Invest \$1000; how much in 5 years? 2 nd [CLR TVM] 5 N 5 I/Y-1000 PV CPT FV = 1276.281563...
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Present Value Calculation Basics - Texas Instruments BA-II...

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