ClassChapter03.pdf;JSESSIONID=l9KJLG1Wffhxk7dhpcjbjthVLVTl4hctL0TLjjgfxJX9jMvsGmrK!-1653588525!mycou

ClassChapter03.pdf;JSESSIONID=l9KJLG1Wffhxk7dhpcjbjthVLVTl4hctL0TLjjgfxJX9jMvsGmrK!-1653588525!mycou

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
1 McGill Faculty of Engineering MIME 310 Engineering Economy Outline Section 1: Monetary Flow Diagrams Section 2: Expressing the time value of money: Interest Rates Section 3: Interest Rate Mechanics • Simple Interest • Compound Interest • Nominal Interest Rate • Effective Interest Rate • Continuous Compounding Section 4: Time Value Equivalence and Compound Interest Factors Section 5: Examples “Remember that time is money” , B. Franklin (1748) A dollar today is worth more than a dollar tomorrow. Chapter 3 – Time Value of Money
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 McGill Faculty of Engineering MIME 310 Engineering Economy Section 1: Monetary Flow Diagrams Monetary Flow Inflow or outflow of cash at a particular point in time • Capital expenditures and operating expenses are negative flows, i.e. funds flowing out of a project or outflows • Revenues are positive flows, i.e. funds flowing into the project or inflows Monetary Flow Diagram Describes a project by its stream of inflows and outflows over time.
Background image of page 2
3 McGill Faculty of Engineering MIME 310 Engineering Economy MONETARY FLOW TIME + - 0 1 23 4 5 Section 1: Monetary Flow Diagrams 1 2 3 4 5 PERIODS
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 McGill Faculty of Engineering MIME 310 Engineering Economy Section 1: Monetary Flow Diagrams 1 2345 0 TIME End-of-period Convention Outflows and inflows occur at irregular intervals over time Outflows and inflows occurring over a particular period of time are represented by net amounts at end of the periods over which they occur
Background image of page 4
5 McGill Faculty of Engineering MIME 310 Engineering Economy Section 1: Monetary Flow Diagrams Section 2: Expressing the time value of money: Interest Rates Section 3: Interest Rate Mechanics • Simple Interest • Compound Interest • Nominal Interest Rate • Effective Interest Rate • Continuous Compounding Section 4: Time Value Equivalence and Compound Interest Factors Section 5: Examples Outline 3 Chapter 3 – Time Value of Money
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 McGill Faculty of Engineering MIME 310 Engineering Economy Section 2: Interest Rates Lender Borrower Lender requires compensation for forgoing the use of her/his wealth INTEREST Relationship between a lender and a borrower of money
Background image of page 6
7 McGill Faculty of Engineering MIME 310 Engineering Economy Consider the following alternatives: Receive either • $100 today • $100 in one year’s time The choice is evident… $100 today is worth more than $100 in one year’s time Section 2: Interest Rates
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 McGill Faculty of Engineering MIME 310 Engineering Economy Section 2: Interest Rates Receive either • $100 today • $125 in one year’s time • If money is invested and earns 10 %, the second alternative is preferable. • If money is invested and earns 25 %, both alternatives are equally desirable, i.e. the alternatives are EQUIVALENT . The choice is not as evident… It depends on how the money is used. ..
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 89

ClassChapter03.pdf;JSESSIONID=l9KJLG1Wffhxk7dhpcjbjthVLVTl4hctL0TLjjgfxJX9jMvsGmrK!-1653588525!mycou

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online