SIMPLE INTEREST The Equivalent Payments教学教案.ppt

Chapter 6 SIMPLE INTEREST 6.4 The Equivalent Payments Equivalent payment: Alternative payments that yield the same dollar amounts at a later date are called equivalent payment. Equivalent value: An alternative amount on a different date that would place the recipient in the same financial position as the scheduled payment or stream of payments. The time value of money: The property that a given nominal amount of money has different economic values on different dates. The property result from the ability of money to earn interest. Note: Because of the time value of money, payments that are made on different dates should be compared only after finding their economically equivalent values on the same date. And if you want to find the combined economic value of different payments, you must calculate their individual equivalent values on the chosen date, then the sum of the equivalent values is their combined economic value. Future Value And Present Value The Future Value of a payment is its equivalent value at a later date, allowing for the time value of money. S=P(1+rt) S represents the future value P represents the scheduled payment earlier t represents a time interval after the scheduled date r represents a simple interest rate Present Value : The equivalent value at an earlier date of a scheduled payment , allowing for the time value of money. S represents the scheduled payment later P represents the present value t represents a time interval before the scheduled date r represents a simple interest rate In summary, there are three areas of application of S=P(1+rt): Calculating the maturity value of a loan or investment Calculating the future value of a scheduled payment Calculating the present value of a scheduled payment Comparing alternative payments using future value First, we use formula S=P(1+rt) to calculate the future value of the payment X on the date of the second payment. This gives the amount