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# mankiw9 - CHAPTER9 BasicToolsofFinance:TimeValueof Money...

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2-1 CHAPTER 9 Basic Tools of Finance:  Time Value of  Money Future value Present value Compounding Classification of interest rates Effective interest rates

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2-2 Time lines Show the timing of cash flows. Tick marks occur at the end of periods, so  Time 0 is today; Time 1 is the end of the  first period (year, month, etc.) or the  beginning of the second period. CF 0 CF 1 CF 3 CF 2 0 1 2 3 r%
2-3 Drawing time lines 100 100 100 0 1 2 3 r% 3 year \$100 ordinary annuity 100 0 1 2 r% \$100 lump sum due in 2 years

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2-4 Drawing time lines 100  50  75 0 1 2 3 r% -50 Uneven cash flow stream
2-5 What is the future value (FV) of an initial  \$100 after 3 years, if r/YR = 10%? Finding the FV of a cash flow or series of cash  flows is called compounding. FV can be solved by using the step-by-step,  financial calculator, and spreadsheet methods.

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