COMMERCE 2FA3 Lecture Notes - Lecture 5: Discount Window, Interest Rate, Opportunity Cost
26 Feb 2019
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Document Summary
These slides primarily use the formulas to work the problems with a brief introduction to financial calculators. Future value and compounding: present value and discounting, more on present and future values. Basic definitions: present value earlier money on a time line. Future value later money on a time line. Interest rate exchange rate between earlier money and later money: discount rate, cost of capital, opportunity cost of capital, required return. It"s important to point out that there are many different ways to refer to the interest rate that we use in time value of money calculations. Students often get confused with the terminology, especially since they tend to think of an interest rate only in terms of loans and savings accounts. Suppose you invest for one year at 5% per year. Interest = 1000(. 05) = 50: value in one year = principal + interest = 1000 + 50 = 1050. Future value (fv) = 1000(1 + . 05) = 1050.
