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Unformatted text preview: Click to edit Master subtitle style 8/25/2009 Principles of Finance with Excel Chapter 5 FINA 4920 Computers in Finance 8/25/2009 Chapter 5: The time value of  Money received right now is worth more to use than money received in the future A function of Time Size of cash flow(s) Interest rate  In Chapter 5, we will deal with Lump sums PV, FV, Interest Rate, Number of periods Annuities PV, FV, Interest Rate, Number of periods, Payment Future Value  How much does $1000 grow into in one year at an APR of 8%? $1000 + (.08x1000) = $1080  In two years: After first year we have $1080 After second year we have $1080 + (.08x1080) = $1166.40 Or: 1000(1.08)(1.08) = 1000(1.08)^2 = $1166.40  We are compounding interest, in other words receiving interest on interest 33 8/25/2009 Future Value Simply create a formula to perform the FV calculation OR Use Excels built-in FV function FV(RATE, NPER, PMT, PV, TYPE) FV Calculation Initial deposit 1000 Interest Rate 8% Number of years, n 1 Formula Function Account balance after n years 1080 ($1,080.00) Future Value  What happens to your $1,000 over time? 55 8/25/2009 Present Value  Suppose you know that your dad will give you $1,000 on the day of your graduation. What is that gift worth today, if interest rates are 8%?  Simply create a formula to perform the PV calculation OR 8/25/2009 # of Periods  Suppose we want to know how long it will take for an account balance to quadruple, given an APR of 8% and annual compounding....
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This note was uploaded on 06/06/2011 for the course STAT 4290 taught by Professor Lazar during the Spring '11 term at University of Georgia Athens.

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FINA4920-chap05 - Click to edit Master subtitle style...

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