COMM-2026EL Chapter Notes - Chapter 5: Interest, Economic Model, Investment
28 Oct 2017
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One of the basic problems that financial managers face is how to determine the value today of cash flows that are expected in the future . Future value (fv) the amount an investment is worth after one or more periods (cash value of an investment sometime in the future) Simple interest interest earned only on the original principal amount invested (interest is not reinvested) The simple interest remains constant each year, but the compound interest you earn gets bigger every year. This is because more and more interest builds up and there is more to compound: the effect of compounding is not great over the short-term, but it starts to add up as the horizon grows. Fvn = pv x (1 + r) n. Using a financial calculator to find fv or pv: *it is extremely important that the calculator is cleared every time you start a problem to clear the calculator, click the 2nd function clr tvm.
