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Unformatted text preview: n n n i FV PV ) 1 ( + = The Present Value (PVn) of a sum of money – Future Value (FVn)  to be received or paid n periods from today is: Here i is the relevant period interest rate , or rate of time discount . Time Value of Money Suppose you can earn 9 percent (annual) interest. What is a promised payment of $1,000 five (5) years from now worth to you today? Application #1 You put $100,000 into an account with a mutual fund, and expect to earn 9.5 percent per year. What will your balance in this account be 12 years from today? Application #2 Suppose the interest rate is 5.95 percent per year. How many years will it take for your balance in an account to double in value? Application #3 “Rule of 70” Suppose the interest rate is 5.95 percent per year. How many years will it take for your balance in an account to double in value? Suppose you purchase a Treasury Bond which promises to pay you PAR or FACE VALUE of $10,000 when it matures 10 years from today. You pay $5,854.31 for this bond. What is the bond’s annual interest yield, or return on your investment?...
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This note was uploaded on 03/28/2012 for the course ECON 252 taught by Professor Robertholand during the Spring '08 term at Purdue.
 Spring '08
 RobertHoland

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