• Present Value
 the amount of money today that would be needed, using prevailing interest
rates, to produce a given future amount of money.
PV = X / (1 + r)
N
PV equals present value
N is the number of years
r is the interest rate
X is the future amount received
• Future Value
 the amount of money in the future that an amount of money today will yield,
given prevailing interest rates.
FV = X * (1 + r)
N
• The Rule of 70
states that if something grows at the rate of X% per year, it will take
approximately 70 / X years to double in size.
○
A dislike of certainty
• A person who is risk averse
dislikes losses more than he or she likes comparable gains.
○
Ex. The pain of losing $5,000 is greater than the pleasure of winning $5,000.
•
The Law of Diminishing Marginal Utility
states that the consumption of the first unit of a good
or service gives you more satisfaction than does the second or third unit.
○
The higher the standard deviation of a portfolio's return the more volatile the return, and
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 Fall '08
 RobertHoland
 Interest Rates, Time Value Of Money, Interest, available information

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