58 simply stated the cash flows present value pv and

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Unformatted text preview: sh flows— present value (PV) and future value (FV) —will have opposite signs. CHAPTER 4 Time Value of Money 139 A Graphical View of Future Value Remember that we measure future value at the end of the given period. Figure 4.5 illustrates the relationship among various interest rates, the number of periods interest is earned, and the future value of one dollar. The figure shows that (1) the higher the interest rate, the higher the future value, and (2) the longer the period of time, the higher the future value. Note that for an interest rate of 0 percent, the future value always equals the present value ($1.00). But for any interest rate greater than zero, the future value is greater than the present value of $1.00. Present Value of a Single Amount present value The current dollar value of a future amount—the amount of money that would have to be invested today at a given interest rate over a specified period to equal the future amount. It is often useful to determine the value today of a future amount of money. For example, how much w...
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