文档介绍：Objective
Explain the concept pounding
and discounting and to provide
examples of real life
applications
Chapter 4: Time Value of Money
Chapter 4 Contents
Compounding
Frequency pounding
Present Value and Discounting
Alternative Discounted Cash Flow Decision Rules
Multiple Cash Flows
Annuities
Perpetual Annuities
Loan Amortization
Exchange Rates and Time Value of Money
Inflation and Discounted Cash Flow Analysis
Taxes and Investment Decisions
Financial Decisions
Costs and benefits being spread out over time
The values of sums of money at different dates
The same amounts of money at different dates have different values.
Time Value of Money
Interest
Purchasing power
Uncertainty
Compounding
Present value (PV)
Future value (FV)
Simple interest: the interest on the original pound interest: the interest on the interest
Future value factor
Value of Investing $1 at an Interest Rate of 10%
Continuing in this manner you will find that the following amounts will be earned:
Value of $5 Invested
More generally, with an investment of $5 at 10% we obtain
Value of $5 Invested
If we can earn 10% interest on the principal $5, then after 4 years
Future Value of a Lump Sum
Example: Future Value of a Lump Sum
Your bank offers a CD (Certificate of Deposit) with an interest rate of 3% for a 5 year investments.
You wish to invest $1,500 for 5 years, how much will your investment be worth?