MGMT 120A Lecture Notes - Lecture 4: Promissory Note, Lump Sum, Compound Interest
Document Summary
Chapter 6 lecture: the time value of money. Terminology: simple interest: earning interest on the principal only, compound interest: earning interest on the principal and the past interest. Each time you earn interest, it is dumped into the account so you earn the next interest on both the principal and the past interest: lump sum- a single payment, annuity- equal stream of payments. Ordinary annuities: payment made at the end of the period. Annuity due: payment is made at the beginning of the period (now) Buy a bond at 1k and it is for 1 year with 10% interest rate= the fv is 1100 (which is 1k * 1. 1) The 1k is called the pv and it is the amount you would have to pay for a bond order to get 1,100 in 1 year with a 10% interest rate. Pv= fv / ((1 + interest rate)^ number of periods)
