Chapter 4Intro: The Time Value of MoneyFI 311Elizabeth BoothKey Concepts and Skills•Be able to compute the future value of an investment made today•Be able to compute the present value of cash to be received at some future date•Be able to compute the return on an investment•Be able to compute the number of periods that equates a present value and a future value given an interest rate•Be able to use a financial calculator and a spreadsheet to solve time value of money problems
Chapter 4Intro: The Time Value of MoneyFI 311Elizabeth BoothBasic Definitions•Present Value – the economic value in “today’s” terms of some future cash flow•Future Value – the economic value in “tomorrow’s” terms of a cash flow today. The amount to which an investment will grow to after earning interest.•Interest rate – “exchange rate” between earlier money and later money–Discount rate–Cost of capital–Opportunity cost of capital–Required return
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