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Unformatted text preview: ich option would you
take? FV= PV (1 + i) N
o FV = Future Value
o PV = Present Value
o i = the interest rate per period
o n= the number of compounding periods (Do you understand “N”? It means to the power of.. 52=25. 33=27) What is the future value of $34 in 5 years if the interest rate is 5%?
o FV= PV ( 1 + i ) N FV= $ 34 ( 1+ .05 )5 FV= $ 34 (1.2762815) FV= $43.39. You can go backwards too. I will give you $1000 in 5 years. How much money should you
give me now to make it fair to me? You think a good interest rate would be 6% (You just
made that number up).
o FV= PV ( 1 + i ) N
$1000 = PV ( 1 + .06) 5 $1000 = PV (1.338)
$1000 / 1.338 = PV
$ 747.38 = PV
√ O.K. so you give me $ 747.38 today and in 5 years I'll give you
$1000. Sound fair?? You will get 6% interest on your money. 54...
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This note was uploaded on 01/30/2014 for the course ECONOMICS Banking an taught by Professor Jones during the Fall '10 term at Homestead Senior High School, Fort Wayne.
- Fall '10