APPENDIX 9 NOTES_Completed (1)

# APPENDIX 9 NOTES_Completed (1) - APPENDIX 9 NOTES Time...

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APPENDIX 9 NOTES Time Value of Money I. Time Value of Money and Interest – people prefer a payment now rather than in the future because of interest Interest = the cost of borrowing A. Simple Interest – interest accrued over time on principal only Example: You invest \$1,000 for 3 years earning 10% simple interest. How much will you have at the end of three years? B. Compound Interest Principal + Accumulated Interest earns interest in the future II. Future Value of a SINGLE Sum FV = the value at a future date of a given amount invested today n = time period (# of compounding periods) i = interest rate corresponding to # of periods PV = present value; the value today FV formula:

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FV table factor (shortcut): III. Present Value of a SINGLE Sum PV = the equivalent value of a future amount discounted back to the present time n = time period (# of compounding periods) i = interest rate corresponding to # of periods FV = future value; the value to be received in the future Annuity = series of equal payments Example 1: You need \$1,331 to pay off your new computer at the end of three years.
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APPENDIX 9 NOTES_Completed (1) - APPENDIX 9 NOTES Time...

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