COMMERCE 2FA3 Lecture Notes - Lecture 5: Interest Rate
19 May 2016
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Time value of money: to the fact that a dollar in hand today is worth more than a dollar promised at some time in the future. Future value: the amount an investment is worth after one or more periods also compound value. The amount of money to which an investment would grow over some length of time at some given interest rate. Future value is the cash value of an investment sometime in the future. After 3 year years = 400(1+. 04)^3 = . 96. Present value: the current value of future cash flows discounted at the appropriate discount rate. Suppose you need ,000 in 10 years and you can earn 6. 5 percent on your money. Finding the number of periods: the rule of 72. Suppose we were interested in purchasing an asset that costs ,000. If we can earn 12 percent on this ,000, how long until we have the.
