[经济学]兹维博迪金融学第二版课件Chapter04.ppt

Chapter 4:  Allocating Resources Over Time Note: This slide show does not follow the book as closely as shows for the other chapters Students getting time value of money for the first time need to double or triple exposure to this basic skill There are many examples at the end of this collection organized into subsections starting at slide 95 of 263 Introduction: Time Value of Money (TVM) $20 today is worth more than the expectation of $20 tomorrow because: a bank would pay interest on the $20 inflation makes tomorrows $20 less valuable than today’s uncertainty of receiving tomorrow’s $20 4.1 Compounding Assume that the interest rate is 10% p.a. What this means is that if you invest $1 for one year, you have been promised $1*(1+10/100) or $1.10 next year Investing $1 for yet another year promises to produce 1.10 *(1+10/100) or $1.21 in 2-years Value of Investing $1 Value of $5 Invested Generalizing the method Generalizing the method requires some definitions. Let i be the interest rate n be the life of the lump sum investment PV be the present value FV be the future value Future Value and Compound Interest Future Value of a Lump Sum Example: Future Value of a Lump Sum Your bank offers a CD with an interest rate of 3% for a 5 year investment. You wish to invest $1,500 for 5 years, how much will your investment be worth? RULE OF 72 This rule says that the number of years it takes for a sum of money to double in value (“the doubling time”) is approximately equal to the number 72 divided by the interest rate expressed in percent per year Doubling Time = 72 Interest Rate Hint: Rounding is common sense “plus” tradition Its important to round appropriately In a $ 7 billions project, rounding might be to the nearest $’000,000 Your check book should be rounded to $0.01 In an accounting situation, any unexpected error, however small could be the result of two larger compensating errors. Accordingly, they need to be resolved Avoid any truncation within