财务管理英语Chapter 2.ppt

Chapter 2 The Time Value of Money Specialty English Of Financial Management Chapter 2 The Time Value of Money The Time Value of Money Principle How To Calculate Future Value and Present Value Valuing Annuities Practice: Solving for Multiple Expected Future Cash Flows Practice: Solving for an Expected Return Practice: Finding a Loan’s Interest Rate Chapter 2 The Time Value of Money Practice: Solving for an Effective Annual Rate Practice: Solving for a Real Interest Rate In Inflation Practice: Solving for an Amount of Time Practice: Solving for Deferred Annuity With a Partial Time Period Vocabulary Time value of money Future value Principal Present value Compounding Compound interest Simple interest Reinvest Vocabulary Discounting Discount rate Future Value Interest Factor Present Value Interest Factor Annuity Financial arrangement Installment Ordinary Annuity Vocabulary Annuity Due Deferred Annuity Perpetuity Annual percentage rate Periodic rate Effective annual rate Inflation rate Nominal interest rate Real interest rate The time value of money principle “Money has time value” A dollar today is worth more than a dollar tomorrow. The time value of money means that after a certain period, capital investment and reinvestment increase the value of money. The time value of money derives from the opportunity to earn interest on it. The time value of money principle Future value is a later value on a current cash flow, including principal and interest, i. e. sum of principal and interest. Present value is a current value on a later cash flow. The Time Line The Time Line Time line for a $100 lump sum due at the end of Year 2. Time line for an ordinary annuity of $100 for 3 years. Time line for uneven CFs: -$50 at t = 0 and $100, $75, and $50 at the end of Years 1 through 3. What’s the FV of an initial $100 after 3 years if i = 10%? How To Calculate Future Value When money is invested at compound interest, each interest payment is reinvested to earn more interest i