BIS3589_ch07 - Chapter7 TimeValueofMoney TimeValueofMoney...

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Chapter 7 Time Value of Money
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Time Value of Money   Time value means money received today is more  valuable than the same amount received tomorrow (in the  future)   Money has a time value if it can earn interest by   Saving  Investing
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Single-Sum Single-sum cashflow:  represents a one-time cash inflow/outflow at a  specific point in time FV n = PV * (1+i) n PV = FV n  / (1+i) n where  FV n :   Future value for n years PV: Present value at a specific period  i: Annual interest rate
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Single-Sum Future Value of a Single-sum: =FV(Rate,Nper,Pmt,PV,Type) =FV(i,n,0,PV,0) Present Value of a Single-sum: =PV(Rate,Nper,Pmt,FV,Type) =PV(i,n,0,FV,0) Note:  Minus (-) represent cash outflow
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Non-Annual Compounding Periods Compounding can be calculated more than one time a year.   Therefore, adjustment must be made to . Number of compounding periods (N) N  =   Years * Frequency of compounding . Interest rate (I) I    =   Annual rate / Frequency of compounding
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