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Unformatted text preview: 00 (you pay 1000 today) FV = 1200 (you receive 1200 in 5 years) CPT I/Y = 3.714% Discount Rate – Example 2
Discount Rate – Example 2 Suppose you are offered an investment that will allow you to double your money in 6 years. You have $10,000 to invest. What is the implied rate of interest?
N = 6 PV = 10,000 FV = 20,000 CPT I/Y = 12.25% Finding the Number of Periods
Finding the Number of Periods Start with basic equation and solve for t (remember your logs)
FV = PV(1 + r)t t = ln(FV / PV) / ln(1 + r) You can use the financial keys on the calculator as well, just remember the sign convention.
Rule of 72 Number of Periods – Example 1
Number of Periods – Example 1 You want to purchase a new car and you are willing to pay $20,000. If you can invest at 10% per year and you currently have $15,000, how long will it be before you have enough money to pay cash for the car?
I/Y = 10 PV = 15,000 FV = 20,000 CPT N = 3.02 years Number of Periods – Example 2
Number of Periods – Example 2 Suppose...
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- Winter '14