mankiw9 - 2-12-1CHAPTER 9Basic Tools of Finance: Time Value...

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Unformatted text preview: 2-12-1CHAPTER 9Basic Tools of Finance: Time Value of MoneyFuture valuePresent valueCompoundingClassification of interest ratesEffective interest rates2-2Time linesShow 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.CFCF1CF3CF2123r%2-3Drawing time lines100100100123r%3 year $100 ordinary annuity10012r%$100 lump sum due in 2 years2-4Drawing time lines100 50 75123r%-50Uneven cash flow stream2-5What 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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This note was uploaded on 09/29/2011 for the course ECO 2315 taught by Professor Bishop during the Fall '09 term at Texas State.

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mankiw9 - 2-12-1CHAPTER 9Basic Tools of Finance: Time Value...

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