{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

311 ch5 - Time Value of Money(An Introduction Chapter 5...

This preview shows pages 1–9. Sign up to view the full content.

Time Value of Money (An Introduction) Chapter 5

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
What is Time Value of Money? A dollar received today is worth more than a dollar received at some point in the future. You can spend it without having to wait or you can invest it and spend even more later Time Value of Money relates interest rates, initial and final values of cash flows
Why use TVM? We use TVM to value securities select investment projects (capital budgeting) determine cost of capital (FIN 312) manage working capital (FIN 312) analyze leases vs. purchases (FIN 312) Personal Finance: home mortgages, paying off credit cards, saving for retirement

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Notation i Interest Rate per period n Number of Periods PMT Cash payments made each period PV Present Value (start of stream) FV Future Value (end of stream) t Time k, r Required Rate of Return (i)
Simple Interest What is the simple interest per period on \$100 at 10%/year for 6 months? I = PV x i x n I = \$100 x 0.10 x 6/12 I = \$5 I = PV x i x n Interest Rate = Principal x Interest Rate x Periods

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
If you took a \$10,000 loan at 1%/month, how much interest would you pay in the first month? I = PV x i x n I = I = I = In the first year? I = I =
If you get \$75 in interest every six months from an account that pays 2%/month, how much principal do you have in the account? I = PV x i x n PV = I / (i x n) PV = PV = Notice that you are not earning interest on interest received in previous periods

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
If you put \$500 into an account that pays 6%/year, how much money would you have in the account after 12 years?
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 32

311 ch5 - Time Value of Money(An Introduction Chapter 5...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online