future value and present value present value参考.ppt

Chapter 8 Compound interest: future value and present value Example 8.3B Mr. and Mrs.Espedido’s property taxes, amounting to $2450, are due on July 1. What amount should the city accept if the taxes are paid 8 months in advance and the city can earn 6% compounded monthly on surplus funds? Solution: j=6% compounded monthly m=12 i=6%/12=0.5% FV=$2450 n=8 The city should be willing to accept $2354.17 on a date 8 months before the scheduled due date. Example 8.3C Two payments of $10,000 each must be made 1 year and 4 years from now. If money can earn 9% compounded monthly, what single payment 2 years from now would be equivalent to the two scheduled payments? Solution: P1=$10,000 j=9% compounded monthly m=12 i=j/m=0.75% term=1 year n1=12 * 8.3 present value Present value formula applies to two types of problems : Calculating the initial principal, and Calculating the present value. The process of calculating a payment’s present value is described as discounting a payment. The interest rate used in the present value calculation is then referred to as the discount rate. In terms of numerical values, present value is smaller than the payment, and future value is larger than the payment. However, these numerically different amounts all have the same economic value. Example 8.3A: If an investment can earn 4% compounded monthly, what amount must you invest now in order to accumulate $10,000 after 3.5 years? Solution: j=4% m=12 FV=$10,000 term=3.5 years i=j/m=0.33333% n=12*3.5=42 year 0 2 1 4 3 S2=$10,000 P1=$10,000 Focal date P2 S1 j=9% compounded monthly now S2=$10,000 i=0.75% term=2 year n2=24 The single equivalent payment on focal date will be S1+P2=$19,296.38. A general principle regarding the present value of loan payments The sum of the present values of all of the payments required to pay off a loan is equal to the original principal of the loan. The discount r