文档介绍：Chapter 4
The time value of money
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Objectives
Calculate the future value to which money invested at a given interest rate will grow
Calculate the present value of a future payment
Calculate present and future values of a series of cash payments
Find the interest rate implied by present and future values
Understand the difference between real and nominal cash flows and between real and nominal interest rates.
Compare interest rates quoted over different time intervals—for example, monthly versus annual rates.
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Content
Future values pound interest
Present values
Multiple cash flows
Level cash flows: perpetuities and annuities
Inflation and the time value of money
Effective annual interest rates
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Suppose you have $100 invested in a bank account, interest rate of 6% per year
Interest in year 1 = .06 ×$100 = $6
Value of investment after 1 year = $100+$6 = $106
Interest in year 2 = .06 ×$106 = $
Value of investment after 1 year = $106+$ = $
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For an interest rate of r and a horizon of t years,
Future value of $100 = $100×(1+r)t
Future value: amount to which an investment will grow after earning interest
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Compound interest: interest earned on interest
Simple interest
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How an investment of $100 grows pound interest at different interest rate
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An example of a future value table, showing how an investment of $1 grows pound interest
FV factor = (1+r)t
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Future value: 终值、pound interest: 复利
Simple interest: 单利
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Content
Future values pound interest
Present values
Multiple cash flows
Level cash flows: perpetuities and annuities
Inflation and the time value of money
Effective annual interest rates
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