Time Value of Money. Assume a couple puts $1,000 in the bank today. Their account earns 8% interest compounded annually. Assuming no other deposits were.

Slides:

Advertisements

Similar presentations

Compound Interest II Money, where fashion continues.

Advertisements

Time Value Ch. 9.

Microeconomics and Macroeconomics FCS 3450 Spring 2015 Unit 3.

What is Interest? Interest is the amount earned on an investment or an account. Annually: A = P(1 + r) t P = principal amount (the initial amount you borrow.

Annuities and Sinking Funds

Present Value Essentials

CHAPTER THREE THE INTEREST RATE FACTOR IN FINANCING.

College Algebra Fifth Edition James Stewart Lothar Redlin Saleem Watson.

1 Chapter 11 Time Value of Money Adapted from Financial Accounting 4e by Porter and Norton.

Real Estate Investments David M. Harrison, Ph.D. Texas Tech University  TVM - Compounding $ TodayFuture $ Discounting Time Value of Money.

D- 1 TIME VALUE OF MONEY Financial Accounting, Sixth Edition D.

Chapter 2 Applying Time Value Concepts Copyright © 2012 Pearson Canada Inc. Edited by Laura Lamb, Department of Economics, TRU 1.

©CourseCollege.com 1 17 In depth: Time Value of Money Interest makes a dollar to be received tomorrow less valuable than a dollar received today Learning.

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved CHAPTER3CHAPTER3 CHAPTER3CHAPTER3 The Interest Factor in Financing.

8,900 x1.06 9,434 x ,000 CHAPTER 6 Accounting and the Time Value of Money ……..………………………………………………………… $10,000 8,900

Chapter 03: Mortgage Loan Foundations: The Time Value of Money McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

Present Value and… Net Present Value. Basic Assumptions: All cash payments (receipts) Certainty regarding: Amount of cash flows Timing of cash flows All.

Chap 8. The Time Value of Money Compound interest Future value and Present value Annuities Multiple Cash Flows NPV and internal rate of return.

 A one time investment of $67,000 invested at 7% per year, compounded annually, will grow to $1 million in 40 years. Most graduates don’t have $67,000.

Appendix C – BACK OF TEXTBOOK Hint: Not in back of Chapter 10! Time Value of Money $$$$

British Columbia Institute of Technology

Chapter 5 Time Value of Money. Time value What is the difference between simple interest and compound interest?

Principles of Financial Management FIN 335

3.6 – Mathematics of Finance

Chapter 9 Time Value of Money © 2000 John Wiley & Sons, Inc.

© 2003 McGraw-Hill Ryerson Limited 9 9 Chapter The Time Value of Money-Part 2 McGraw-Hill Ryerson©2003 McGraw-Hill Ryerson Limited Based on: Terry Fegarty.

Bennie Waller – Longwood University Personal Finance Bennie Waller Longwood University 201 High Street Farmville, VA.

Applying Time Value Concepts

© 2003 McGraw-Hill Ryerson Limited 9 9 Chapter The Time Value of Money-Part 1 McGraw-Hill Ryerson©2003 McGraw-Hill Ryerson Limited Based on: Terry Fegarty.

Chapter IV Tutorial Time Value of Money. Important Abbreviations N (number of periods) I/Y (interest per year) PV (present value) PMT (payment) FV (future.

August, 2000UT Department of Finance The Time Value of Money 4 What is the “Time Value of Money”? 4 Compound Interest 4 Future Value 4 Present Value 4.

Applications of Exponential Functions. Objectives To solve real-life application problems using the properties of exponents and exponential functions.

CIMABusiness MathematicsMr. Rajesh Gunesh Future Value and Compounding –After 1 year, your CD is worth $2,500 ( ) = $2, –After 2 years, the.

Annuity investments demand regular equal deposits into an investment.

1 Chapter 9, Part 2 Time Value of Money 1. Present Value of a Single Amount 2. Present Value of an Annuity 3. Future Value of a Single Amount 4. Future.

Quick answers If the bank is offering 12% per year compounded quarterly what would be the value of “i” in the Amount of an annuity formula? If the Nicole.

CDA COLLEGE BUS235: PRINCIPLES OF FINANCIAL ANALYSIS Lecture 4 Lecture 4 Lecturer: Kleanthis Zisimos.

CDAE Class 04 Sept. 6 Last class: 1.Introduction 2.Review of economic and business concepts Today: 2. Review of economic and business concepts Class.

Time Value of Money. Future Value of Money n The value of an investment after it has been compounded with interest for a specific period of time n FV.

Annuity investments demand regular equal deposits into an investment.

Future Value of an Ordinary Simple Annuity Annuity - Series of equal payments or deposits earning compound interest and made at regular intervals over.

1. 2 Meaning of Time value of money, Concept of Time Line, Calculating Future value, Present value, Discounting, Compounding, Different types of Interest.

1 SS Present Value of An Annuity MCR3U - Santowski.

Copyright © Cengage Learning. All rights reserved. Sequences and Series.

10/25 More work with annuities, mortgages, etc Simple interest Compound interest Present value effective rate Annuity Present value of annuity.

PRE-ALGEBRA. Lesson 7-7 Warm-Up PRE-ALGEBRA Simple and Compound Interest (7-7) principal: the amount of money that is invested (put in to earn more)

Simple Interest 6.7. Simple Interest The money earned on a savings account or an investment. It can also be money you par for borrowing money.

© 2004 The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin Chapter 6 Time Value of Money Concepts.

Introduction to Accounting I Professor Marc Smith CHAPTER 1 MODULE 1 Time Value of Money Module 3.

An Overview of Personal Finance The Time Value of Money –Money received today is worth more that money to be received in the future –Interest Rates Nominal.

Chapter 9 Time Value of Money © 2011 John Wiley and Sons.

Annuities, Loans, and Mortgages Section 3.6b. Annuities Thus far, we’ve only looked at investments with one initial lump sum (the Principal) – but what.

Today in Precalculus Go over homework Need a calculator Notes: Annuities (Future Value) Homework.

Compound Interest Formula. Compound interest arises when interest is added to the principal, so that, from that moment on, the interest that has been.

5-1 Computing APRs What is the APR if the monthly rate is.5%? What is the APR if the semiannual rate is.5%? What is the monthly rate if the APR is 12%

Compound Interest. interest that actually earns interest itself to figure: –find the initial interest –add it to the principal –find the interest on the.

3.10 & 3.11 Exponential Growth Obj: apply compound and continuously compounding interest formulas.

Determine the amount saved if $375 is deposited every month for 6 years at 5.9% per year compounded monthly. N = 12 X 6 = 72 I% = 5.9 PV = 0 PMT = -375.

Analytical Methods for Lawyers (Finance) Future value [last updated 6 Apr 09]

6-1 Time Value of Money Future value Present value Annuities Rates of return Amortization.

The Secrets of Saving. Congratulations! You have two job offers! POD…which option would you choose? Option 1: For the first twenty days of work, you will.

TVM Review. What would your future value be if you invested $8,000 at 3% interest compounded quarterly for 15 years?

Understanding and Appreciating the Time Value of Money

7.5 Compound Interest and Present Value Mr. Peltier.

1 Illustration 1: Long Term Notes Payable May be interest bearing or non-interest bearing (we will look at non-interest bearing). May be serial notes (periodic.

Annuities; Loan Repayment  Find the 5-year future value of an ordinary annuity with a contribution of $500 per quarter into an account that pays 8%

Interest Applications - To solve problems involving interest.

Time Value of Money Annuity.

Personal Finance Annuities

Presentation transcript:

Time Value of Money

Assume a couple puts $1,000 in the bank today. Their account earns 8% interest compounded annually. Assuming no other deposits were made, what will be the balance of the bank account at the end of 10 years?

Future Value of $1 PV (FV Factor) = FV $1,000 (n=10, i=8) $1,000 (2.159) = $2,159 At the end of 10 years, they would have $2,159 in the bank.

Assume a couple puts $1,000 in the bank today. Their account earns 8% interest compounded semi-annually. Assuming no other deposits were made, what will be the balance of the bank account at the end of 10 years?

Future Value of $1 PV (FV factor) = FV $1,000 (n=20, i=4) $1,000 (2.191) = $2,191 At the end of 10 years, they would have $2,191 in the bank.

Assume a couple wants to have $100,000 in the bank by the end of 15 years. They invest in an account that will pay 6% interest compounded annually. How much money do they need to deposit in the investment account today?

Present Value of $1 FV (PV Factor) = PV $100,000 (n=15, i=6%) $100,000 (.417) = $41,700 They should deposit $41,700 in the investment account today in order to have $100,000 at the end of 15 years.

Assume a couple wants to have $100,000 in the bank by the end of 15 years. They invest in an account that will pay 6% interest compounded semi-annually. How much money do they need to deposit in the investment account today?

Present Value of $1 FV (PV Factor) = PV $100,000 (n=30, i=3%) $100,000 (.412) = $41,200 They should deposit $41,200 in the investment account today in order to have $100,000 at the end of 15 years.

Assume a couple would like to set up an IRA account this taxable year. They choose to contribute $2,000 to the investment account at the end of each of the next 10 years. Their investment will earn 7% interest compounded annually. How much will they have at the end of 10 years?

Future Value of an Annuity Annuity (FVA Factor) = FV of Deposits and Interest $2,000 (n=10, i=7%) $2,000 (13.816) = $27,632 If they deposit $2,000 at the end of each of the next 10 years, and additionally earn 7% interest (compounded annually), they should have $27,632 at the end of the 10 year period.

You just won the lottery - $5,000,000. The State’s rules say that you may choose to receive the winnings in one of two ways. 1) You may choose to receive a check for $1,000,000 at the end of each of the next 5 years (annually). OR 2) You may choose to receive all the winnings in one check today equal to the present value of all 5 annual $1,000,000 payments. The current interest rate on investments is 6%

Present Value of an Annuity Annuity (PVA Factor) = PV of Deposits and Interest $1,000,000 (n=5, i=6) $1,000,000 (4.212) = $4,212,000 If you choose to receive all the winnings today equal to the present value of 5 annual payments – the check you receive today will be for $4,212,000.

Assume instead, the Lottery commission offered to pay you $500,000 every 6 months (semi-annually) for the next 5 years. At an annual interest rate of 6%, what would be the present value of that annuity assuming you chose to accept all the winnings in one check today.

Present Value of an Annuity Annuity (PVA Factor) = PV of Deposits and Interest $500,000 (n=10, i=3) $500,000 (8.530) = $4,265,000 If you choose to receive all the winnings today equal to the present value of 10 semi-annual payments of $500,000 – the check you receive today will be for $4,265,000.