09_15_09_Ch5_Outline_Time_Value_of_Money

09_15_09_Ch5_Outline_Time_Value_of_Money - Evan Stein...

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Evan Stein September 14, 2009 Professor Swasey FINA 3301, Sec 2 Chapter 5 Outline: Time Value of Money Time value of money is the single most important financial concept Time Lines are your friends!!! (pg 123) o An important tool used in time value analysis o A graphical representation used to show the timing of cash flows o Each note corresponds to both the end and beginning of one year Future Values o A dollar today is worth more than a dollar tomorrow Option to invest it, earn interest, and thus end up with more o Future Value (FV) The amount to which a cash flow or series of cash flows will gorw over a given period of time when compounded at a given interest rate FV N = PV(1+I) N o Compounding – The arithmetic process of determining the final value of a cash flow or series of cash flows when compound interest is applied Compound Interest – Occurs when interest is earned on prior periods’ interest Simple Interest – Occurs when interest is not earned on interest Legal procedures often use this method
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This note was uploaded on 02/25/2012 for the course FIN 4319 taught by Professor Toles during the Fall '08 term at Texas State.

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09_15_09_Ch5_Outline_Time_Value_of_Money - Evan Stein...

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