universityofSaskatchewan公司财务导论(金融学)e.pdfVIP

TheTimeValueofMoney

Fall20031

PresentValueandFutureValue

•Withpositiveinterestrates,money“grows”over

time

•Forafixedamountofcashflowtoday,howmuchis

itworthinthefuture?=futurevalue

•Toreceiveafixedcashflowinthefuture,how

muchtoinvesttoday?=presentvalue

Fall20032

SingleCashflow,OnePeriod

Example

Annualinterestrate=10%.

1.Deposit$1inyourbankaccount.Howmuchisit

worthinoneyear?

i.e.,futurevalueof$1today?

2.Toreach$1inyouraccountinoneyear,howmuch

todeposittoday?

i.e.,presentvalueof$1tobereceivedinoneyear?

Fall20033

SingleCashflow,OnePeriod

•Givenafuturecashflowandtheinterestrate,find

thepresentvalue

•Givencurrentcashflowandtheinterestrate,find

thefuturevalue

•Theone-to-onerelationshipbetweenFVandP

Fall20034

CompoundInterestvs

SimpleInterest

Example:Youdeposit$100todayinyourbankaccount.

r=10%.In2yearstime,if

Øsimpleinterest

FV=$100+2(100*0.1)=$120

Øcompoundinterest,

FV=100*(1+.1)(1+.1)

=$100*(1+2*0.1+0.1*0.1)=$121

•Compoundinterests=earninterestsoninterests

•Compoundinterestsareusedinfinance

Fall20035

Example

Q.Deposit$5,000todayinanaccount

paying12%.

•Howmuchwillyouhavein6years,

assuminginterestsarecompounded

annually?

•Howmuchissimpleinterest?

•Howmuchiscompoundinterest?

Fall2003