台湾大学The Time Value of Money Training.PPTVIP

Topics Covered Future Values Present Values Multiple Cash Flows Perpetuities and Annuities Inflation Time Value Effective Annual Interest Rate Future Values Future Value - Amount to which an investment will grow after earning interest. Compound Interest - Interest earned on interest. Simple Interest - Interest earned only on the original investment. Future Values Future Value of $100 = FV Future Values Future Values Future Values with Compounding Manhattan Island Sale Present Values Present Values Present Values Example You just bought a new computer for $3,000. The payment terms are 2 years same as cash. If you can earn 8% on your money, how much money should you set aside today in order to make the payment when due in two years? Present Values Discount Factor = DF = PV of $1 Discount Factors can be used to compute the present value of any cash flow. Time Value of Money(applications) The PV formula has many applications. Given any variables in the equation, you can solve for the remaining variable. Time Value of Money(applications) Value of Free Credit Implied Interest Rates Internal Rate of Return Time necessary to accumulate funds PV of Multiple Cash Flows Example Your auto dealer gives you the choice to pay $15,500 cash now, or make three payments: $8,000 now and $4,000 at the end of the following two years. If your cost of money is 8%, which do you prefer? PV of Multiple Cash Flows PVs can be added together to evaluate multiple cash flows. Perpetuities Annuities Perpetuity A stream of level cash payments that never ends. Annuity Equally spaced level stream of cash flows for a limited period of time. Perpetuities Annuities PV of Perpetuity Formula C = cash payment r = interest rate Perpetuities Annuities Example - Perpetuity In order to create an endowment, which pays $100,000 per year, forever, how much money must be set aside today in the rate of interest is 10%? Perpetuities Annuities Example - continued If the first perp