Time Value of Money

Dec 12, 2012

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Time Value of Money

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Time Value of Money

Time Value of Money. Many financial decisions require comparisons of cash payments at different dates Example: 2 investments that require an initial investment of $100 Timing Inv 1 Inv 2 After 1 year $30 $20 After 2 years $30 $20 After 3 years $30 $40 After 4 years $30 $60

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Time Value of Money

Time Value of Money. The Starting Point. NPV analysis allows us to compare monetary amounts that differ in timing. We can also incorporate risk into the analysis, however we will not concern ourselves with this complication at this time.

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Time Value of Money

Time Value of Money. Compounding. Assume that the interest rate is 10% p.a. What this means is that if you invest $1 for one year, you have been promised $1*(1+10/100) or $1.10 next year Investing $1 for yet another year promises to produce 1.10 *(1+10/100) or $1.21 in 2-years.

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Time Value of Money

Chapter 5. Time Value of Money. Future Value Present Value Annuities Different compounding Periods Adjusting for frequent compounding Effective Annual Rate (EAR). The Concept of TVM. You want to buy a computer and a friend offers you a $1000. Would you prefer use the money now.

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Time Value of Money

Time Value of Money . CHAPTER PLAY LIST SONGS: “Bang on the Drum All Day” by Todd Rundgren “All Work and No Play” by Van Morrison “Sixteen Tons” by Tennessee Ernie Ford. Learning Objectives.

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Time Value of Money

Time Value of Money. Why do we need TVM?. $ now does not equal $ later Why? Inflation Purchasing power. Key Variables in TVM. PV FV I PMT N. Basic Examples. What is the basic formula for PV? Example #1 Example #2. Annuities. What is an annuity? How do we solve for an annuity?.

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Time value of Money

Time value of Money. It may be noted that any project which is undertaken will involve the expenditure ie lot of Money. Money has time value. A rupee today is more valuable than a rupee a year hence. There are several reasons

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Time Value of Money

Time Value of Money. Family Economics & Financial Education. Time Value of Money. Time value of money – Because you can receive interest on any money you have, money received today is worth more than money received in the future

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Time Value Of Money

Time Value Of Money. Time Value of Money. Refers to the fact that one dollar in hand today is worth more than one dollar promised in the future One reason is that you could earn interest on that dollar while you wait--depends on the rate of interest. Future Value. Notice that

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Time Value of Money

Time Value of Money. The Time Value of Money. The Interest Rate Simple Interest Compound Interest Amortizing a Loan. The Interest Rate. Obviously, $10,000 today . You already recognize that there is TIME VALUE TO MONEY !!.

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Time Value of Money

Time Value of Money. Time Value of Money. Time preference/ Value for money is an individual’s preference for possession of a given amount of money now, rather than the same amount at some future time. Three reasons may be attributed to the individual’s time preference for money: Risk

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Time Value of Money

Time Value of Money. The Time Value of Money. The Interest Rate Simple Interest Compound Interest Amortizing a Loan. Obviously, $10,000 today . You already recognize that there is TIME VALUE TO MONEY !!. Which would you prefer -- $10,000 today or $10,000 in 5 years ?.

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Time Value of Money

Time Value of Money. Future Value of Money. The value of an investment after it has been compounded with interest for a specific period of time Compound Interest is a very powerful tool in making your money work for you. Ways to figure the future value of money. Future value formula

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Time Value of Money

Chapter 5. Future Value Present Value Annuities Rates of Return Amortization. Time Value of Money. Time Lines. Show the timing of cash flows.

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Time Value of Money

Time Value of Money. TVM - Compounding $ Today Future $ Discounting. Future Value (FV). Definition -. FV n = PV(1 + i) n. 1. 2. 0. N. FV = ?. PV=x. Future Value Calculations.

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Time Value of Money

1. Present Value. 0. 1. 2. 3. 4. 5. 4. # of Periods. Rate of Interest. Future Value. 2. 3. Time Value of Money. Computing Simple Interest I = P x R x T

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Time Value of Money

Time Value of Money. UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee. Time Value. of Money. Interest - Defined. The cost of using money.

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Time Value of Money

Time Value of Money. Future Value of Money . The value of an investment after it has been compounded with interest for a specific period of time FV = principle (1 + interest) years FV of $5,000 in 5 years if interest is %5? FV = 5,000 (1.05) 5 FV = 5,000 (1.34) FV = $6,700.

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Time Value of Money

Time Value of Money. Future Value Present Value Annuities Fixed-Rate Mortgages. Future Value. Single Period Multiple compounding periods within a year Longer Horizons Examples. Future Value. Example: Deposit $10,000 in bank Interest rate = 6%

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