公司理财〔双语〕timevalue.ppt

Time value of money A dollar today is worth more than a dollar tomorrow. The dollar today can be invested to start earning interest immediately Simple and Compound interest Simple interest Interest is not reinvested, is earned each period only on the original principal. Suppose you invest $1000 for one year at 5% per year. What is the future value in one year? Interest = 1000(.05) = 50 Value in one year = principal + interest = 1000 + 50 = 1050 Future Value (FV) = 1000(1 + .05) = 1050 Suppose you leave the money in for another year. How much will you have two years from now? FV = 1000(1.05)(1.05) = 1000(1.05)2 = 1102.50 FV = PV(1 + r)t FV = future value PV = present value r = period interest rate t = number of periods Future value interest factor = (1 + r)t Quick Quiz What is the difference between simple interest and compound interest? Suppose you have $500 to invest and you believe that you can earn 8% per year over the next 15 years. How much would you have at the end of 15 years using compound interest? How much would you have using simple interest? Quick Quiz – Part II What is the relationship between present value and future value? Suppose you need $15,000 in 3 years. If you can earn 6% annually, how much do you need to invest today? If you could invest the money at 8%, would you have to invest more or less than at 6%? How much? Question If the present value of $150 paid at the end of one year is $130, what is the one-year discount factor? What is the discount rate? Calculate the one-year discount factor DF1 for discount rates of (a) 10 percent, (b) 20 percent,and (c) 30 percent 4.* Point out that the PV interest factor = 1 / (1 + r)t N = 15; I/Y = 8; PV = 500; CPT FV = -1,586.08 Formula: 500(1.08)15 = 500(3.172169) = 1,586.08 500 + 15(500)(.08) = 1,100 Lecture Tip: You may wish to take this opportunity to remind students that, since compound growth rates are found using only the beginning and ending values of a series, they convey nothing about