Week 3 - Time Value of Money

# Week 3 - Time Value of Money - Finance 310 Prof Gamble TIME...

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Finance 310 Prof. Gamble TIME VALUE OF MONEY Goals: Understand the time value of money. Be able to calculate the value of money at different points in time. Use time value of money calculations to make smart financial decisions. Reading: Chapters 3 and 4 - “The Valuation Principle” and “The Time Value of Money” The Future Value of Money Invested Today Example: Invest \$1000 in a bank account earning a 3% interest rate each year. How much will you have in your account in 1 year? How much will you have in your account in 2 years? How much will you have in your account in 25 years? Example: Invest \$10,000 in the stock market earning 8% per year for 27 years? Example: Paper Folding

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2 Rule of 72 - the approximate time it takes a value to double growing at i % is ± ² Example: 3% Example: 10% Example: interest rate = r Example: Grandmother's land purchased in 1961 that has quadrupled in value. What rate of annual interest has she earned?
3 The Present Value of Money Paid in the Future

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Week 3 - Time Value of Money - Finance 310 Prof Gamble TIME...

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