ACIS_2115_Appendix_C_Spring_2009_Slides

# ACIS_2115_Appendix_C_Spring_2009_Slides - ACIS 2115...

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ACIS 2115 – Appendix C Present and Future Value Concepts

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A do lla r re c e ive d to da y is  wo rth m o re  tha n a  do lla r  re c e ive d in the  future  b e c a us e  the  do lla r c a n b e   inve s te d to da y to  e a rn inte re s t. Tim e  va lue  o f m o ne y c o nc e pts  a re  us e d in m a ny  a c c o unting  a pplic a tio ns . Time Value of Money
Variables: 1. Principal (amount invested or borrowed) 2. Interest Rate ( i ) 3. Time (number of periods denoted n ) Compound Interest – Interest is earned on interest. Calculation of Interest

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On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? Amount at Amount at Date Start of Year Interest During the Year End of Year* Jan. 2007 \$20,000.00 2007 \$20,000 \$20,000 x 8% = \$1,600.00 \$21,600.00 2008 \$21,600 \$21,600 x 8% = \$1,728.00 \$23,328.00 2009 \$23,328 \$23,328 x 8% = \$1,866.24 \$25,194.24 Example *Amount at End of Period = Amount at Start of Period +  Interest Earned during the Period
Future Value = \$25,194.24 Present Value = \$20,000 Present Value and Future Value 0 1 2 3 Number of Periods Present Value = current value of an amount Future Value = the amount to which an amount will increase

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On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? In other words, what is the  future value  of the \$20,000 invested  at 8% compounded annually? = 20,000.00 \$ x (1 + i ) n = 20,000.00 \$ x (1 + .08) 3 = 25,194.24 \$ Example with Formula A formula can be used to calculate the future value as follows:
On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? In other words, what is the future value of the \$20,000 invested at  8% compounded annually? = 20,000.00

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## This note was uploaded on 08/30/2011 for the course ACIS 2115 taught by Professor Jayardley during the Spring '07 term at Virginia Tech.

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ACIS_2115_Appendix_C_Spring_2009_Slides - ACIS 2115...

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