CSM 300
The Time Value of Money
Future and Present Value of Annuities
Annuties
Annuity more than one cash flow, of the same amount and at regular intervals.
Ordinary annuity payment at the end of the period
Annuity due payment at the start of the perio

CSM 300
The Time Value of Money
Income Taxes and Mortgages
One of the frequently touted benefits of home ownership is the tax-deductible status of
mortgage interest payments. This may be particularly true during the early years of the
mortgage when monthl

CSM 300
Time Value of Money
Demand Determines Price
Demographics of potential buyers
Psychological factors of potential buyers
Price elasticity or sensitivity of buyers
Supply Determines Price
Companys objectives for the pricing strategy
Beat competition

CSM 300
The Time Value of Money
Refinancing
In times of decreasing mortgage interest costs, it may be advisable for clients to
refinance their home mortgages. This means that they will pay-off their existing
mortgage and take out another long-term loan to

CSM 300
The Time Value of Money
Home Buying
Buying a house is frequently the most important financial decision that a family
makes. Not only does home buying represent an allocation of resources to housing a
family, it is also a major investment decision.

CSM 300
The Value of Money Future
Present Value
A dollar today is worth more than a dollar tomorrow.
Inflation erodes purchasing power
Opportunity cost of investment
Present Value what you presently have
Interest Rate the earning potential of the mon

CSM 300
Time Value of Money
Present and Future Value of a Lump Sum
Homework #2
1. A number of years ago, John invested $6,000 in an account earning 9% interest. If the
account balance is currently $10,968, for how long has John had the account?
PV = -600

CSM 300
Time Value of Money
Present and Future Value of a Lump Sum
Homework #1
1. You invest $1,500 into a savings account with an annual interest rate of 7%. How
much will you have in the account after 10 years if the interest is reinvested each
year?
P

CSM 300
The Value of Money Future
Future Value
A dollar today is worth more than a dollar tomorrow.
Inflation erodes purchasing power
Opportunity cost of investment
Present Value what you presently have
Interest Rate the earning potential of the mone

CSM 300
Time Value of Money
Time Value of Money Problem Examples
1. Bonnie has just won $500,000 in the state lottery. She is to receive $25,000 per
year for 20 years starting one year from now. If the opportunity cost of the money
is worth 8% annual inte