COMM-2026EL Chapter Notes - Chapter 6: Cash Flow, Effective Interest Rate, Savings Account
30 Oct 2017
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6. 1 future and present vales of multiple cash flows. The time line below is very useful for solving complicated problems almost any time you are having trouble with a pv or fv problem, drawing a time line will help you see what is happening. The first is on deposit for 2 years at 8%, therefore, its future value is x 1. 082 = . 64. The second is on deposit for 1 year at 8%, its future value is thus x 1. 08 = . The total future value, then, is . 64 + = . 64. As with future values, there is 2 ways we can calculate present values. We can either (1) discount back one period at a time, or (2) calculate the present values individually and add them up. Suppose you need ,000 in one year and ,000 more in two years. The present value of ,000 in 2 years at 9% is ,000/1. 092 = ,683. 36.
