1 / 25

473.32 5 Winter 2014

CF. 473.32 5 Winter 2014. The Time Value of Money. ch 5. Time Value of Money. What is the Present Value of $ received in future? Future Value of $ given today? Interest Rate during the periods between?. Present Value. Present Value. -$900. $1,000. P. F. Present Value. -$800.

calvin-fischer
Download Presentation

473.32 5 Winter 2014

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CF 473.32 5 Winter 2014

  2. The Time Value of Money ch 5

  3. Time Value of Money • What is the • Present Value • of $ received in future? • Future Value • of $ given today? • Interest Rate • during the periods between?

  4. Present Value

  5. Present Value • -$900 • $1,000 • P • F

  6. Present Value • -$800 • -$900 • $1,000 • P • F

  7. Present Value • -$700 • -$800 • -$900 • $1,000 • P • F

  8. Present Value • -$600 • -$700 • -$800 • -$900 • $1,000 • P • F

  9. Present Value • -$500 • -$600 • -$700 • -$800 • -$900 • $1,000 • P • F

  10. Present Value • -$500 • -$600 • -$700 • -$800 • -$900 • $1,000 • PV0 • FV5

  11. Present Value • “discounting” • vf • vp • PV • = • ? • FV • = • $1,000 • t • = • 1 • r • = • 10% • ? • ? • ? • ? • ? • FV • -$500 • -$600 • -$700 • -$800 • -$900 • $1,000 • t

  12. Present Value • “discounting” • PV • = • -$909.09 • FV • = • $1,000 • t • = • 1 • r • = • 10% • PV • FV • -$909.09 • $1,000 • t

  13. Present Value • “discounting” • PV • = • ? • FV • = • $1,000.00 • t • = • 2 • r • = • 10% • ? • PV • FV • -$909.09 • $1,000 • -$826.45 • t • t

  14. Present Value • “discounting” • PV • = • FV • = • $1,000.00 • 1…5 • t • = • r • = • 10% • FV • -$909.09 • $1,000 • -$826.45 • -$620.92 • -$683.01 • -$751.31

  15. Future Value • PV • = • -$1,000 • FV • = • ? • t • = • 1 • r • = • 10% • ? • PV • FV • -$1,000 • $1,100 • t

  16. Future Value • “compounding” • Why not $1,200? • PV • = • -$1,000 • FV • = • $1,210 • t • = • 2 • r • = • 10% • ? • PV • FV • -$1,000 • $1,100 • $1,210 • t • t

  17. Future Value • “compounding” • PV • = • -$1,000.00 • FV • = • t • = • 1…5 • r • = • 10.00% • FV • $1,610.51 • -$1,000.00 • $1,100.00 • $1,210.00 • $1,331.00 • $1,464.10 • t=1 • t=2 • t=3 • t=4 • t=5 • PV

  18. Future Value • also works as a general growth formula • suppose we • currently sell 1,000 widgets/year • expect to increase sales at 10%/year for 5 years • how many will we be selling in five years? • useful for figuring out building projects & capital needs

  19. t • “time periods” • PV • = • -$1,000.00 • FV • = • $1,100.00 • $2,000.00 • r • = • 10% • t • = • ? • $2,000.00 • -$1,000.00 • $1,100.00 • FV • PV

  20. r • “discount rate” • PV • = • -$1,000.00 • FV • = • $1,100.00 • t • = • 1 • r • = • ? • -$1,000.00 • $1,100.00 • FV • PV

  21. r • “discount rate” • PV • = • -$1,000.00 • FV • = • $1,420.00 • t • = • 1 • r • = • ? • -$1,000.00 • $1,420.00 • FV • PV

  22. r • “discount rate” • PV • = • -$1,000.00 • FV • = • $1,420.00 • t • = • 5 • r • = • ? • -$1,000.00 • $1,420.00 • FV • PV

  23. r • “discount rate” • interest rate • IRR • internal rate of return • ERR • equivalent rate of return • CAGR • compound annual growth rate

  24. Time Value of Money • useful for choosing between options • suppose we can choose between • investing $500 in a company • receiving $600 in 5 years • putting $500 in the bank • at 4% • r ? • 3.71% • FV ? • $608.33 • which is better?

  25. this is the most important chapter read work on problems meet think next Tue report due Remember

More Related