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FINA4920-chap05

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

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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 &#2; 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 &#2; 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 &#2; How much does \$1000 grow into in one year at an APR of 8%? \$1000 + (.08x1000) = \$1080 &#2; 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 &#2; 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 Excel’s 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 &#2; What happens to your \$1,000 over time? 55 8/25/2009 Present Value &#2; 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%? &#2; Simply create a formula to perform the PV calculation OR 8/25/2009 # of Periods &#2; 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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FINA4920-chap05 - Click to edit Master subtitle style...

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