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The Time Value of Money

The Time Value of Money. “A Dollar Today is Worth More than a Dollar Tomorrow”. Money today will not be worth the same amount in the future Future Value: How much your money will be worth in the future. What is the Time Value of Money?. Number of Periods

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The Time Value of Money

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  1. The Time Value of Money “A Dollar Today is Worth More than a Dollar Tomorrow”

  2. Money today will not be worth the same amount in the future • Future Value: How much your money will be worth in the future What is the Time Value of Money?

  3. Number of Periods • Compounded monthly: multiply the number of periods by 12 • Compounded quarterly: multiple the number of periods by 4 • Compounded semi annually: multiply the number of periods by 2 • Rate • Compounded monthly: divide the rate by 12 • Compounded quarterly: divide the rate by 4 • Compounded semi annually: divide the rate by 2 Compounding

  4. What will $1,500 invested today be worth in eight years if the interest earned on the investment is 7%? • The $1,500 that is invested today represented the present value. The amount it will grow at 7% compounded annually by the end of the eighth year will be $2,577.28 (the Future Value). How do I Calculate It?

  5. How much would $10,000 compounded semi annually for 5 years at a rate of 10% be worth at the maturity date? • The $10,000 will represent the present value. Since the money is compounded semi annually, you must divide the rate (10%) by 2 and multiply the number of periods (5) by 2. Doing this, you should get the answer $16,288.95 (the Future Value). Calculating With different compounding

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