15 Notes Rec-Pay - 15 TimeValueofMoney TimeValueofMoney...

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Time Value of Money – Time Value of Money – Notes and Bonds Notes and Bonds Accountancy 301 Spring 2011 Flora Zhou 15
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Today Today ’s agenda ’s agenda • Quick review of Time value of money – $1 – Annuity: ordinary annuity, annuity due, deferred  annuity, perpetuity • Applications of time value of money – Long-term notes – Bonds
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Present value of a future single  Present value of a future single  sum  sum  • Present value  of a  future single sum  is the  today’s  worth  of that future single sum discounted at a  given interest rate (or discount rate).  • Present value of $1 received in  n periods from  today  =  1/(1 + r) n , where  r  is the interest rate per  period;  n  is the number of periods one has to wait  to receive $1 in the future. Table 1  on next page shows the present value of  $1 received at various future periods and  discounted at various interest rates.
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Present value of a future single  Present value of a future single  sum sum Table 1 Present Value of $1:  PV = 1/ (1+r) n      N/ R  0.005  0.01  0.05  0.06  0.08  0.09  0.1  0.11  0.12  0.99502  0.99010  0.95238  0.94340  0.92593  0.91743  0.90909  0.90090  0.89286  0.99007  0.98030  0.90703  0.89000  0.85734  0.84168  0.82645  0.81162  0.79719  0.98515  0.97059  0.86384  0.83962  0.79383  0.77218  0.75131  0.73119  0.71178  0.98025  0.96098  0.82270  0.79209  0.73503  0.70843  0.68301  0.65873  0.63552  0.97537  0.95147  0.78353  0.74726  0.68058  0.64993  0.62092  0.59345  0.56743  0.97052  0.94205  0.74622  0.70496  0.63017  0.59627  0.56447  0.53464  0.50663  0.96569  0.93272  0.71068  0.66506  0.58349  0.54703  0.51316  0.48166  0.45235  0.96089  0.92348  0.67684  0.62741  0.54027  0.50187  0.46651  0.43393  0.40388  0.95610  0.91434  0.64461  0.59190  0.50025  0.46043  0.42410  0.39092  0.36061  10  0.95135  0.90529  0.61391  0.55839  0.46319  0.42241  0.38554  0.35218  0.32197  11  0.94661  0.89632  0.58468  0.52679  0.42888  0.38753  0.35049  0.31728  0.28748  12  0.94191  0.88745  0.55684  0.49697  0.39711  0.35553  0.31863  0.28584  0.25668  13  0.93722  0.87866  0.53032  0.46884  0.36770  0.32618  0.28966  0.25751  0.22917  14  0.93256  0.86996  0.50507  0.44230  0.34046  0.29925  0.26333  0.23199  0.20462  15  0.92792  0.86135  0.48102  0.41727  0.31524  0.27454  0.23939  0.20900  0.18270  Pick a couple of numbers from this table and verify if they  are correct (after class exercise)
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Present value of a future single  Present value of a future single  sum sum • Example – Your uncle promised to give you  $10,000  one  year from today. What is the present  value (today’s worth) of $10,000 to be received 
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15 Notes Rec-Pay - 15 TimeValueofMoney TimeValueofMoney...

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