BU111 Chapter 3: Time Value of Money Concepts
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BU111 Full Course Notes
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Money today is more valuable than money in the future. Simple interest: interest received/paid is based solely on the amount that was initially invested, therefore the interest will always be the same (cid:1845)(cid:1865)(cid:1868)(cid:1864)(cid:1857) (cid:1866)(cid:1872)(cid:1857)(cid:1870)(cid:1857)(cid:1871)(cid:1872)=(cid:1866)(cid:1874)(cid:1857)(cid:1871)(cid:1872)(cid:1865)(cid:1857)(cid:1866)(cid:1872) (cid:4666)1+(cid:4666)(cid:1844)(cid:1876)(cid:1840)(cid:4667) The i(cid:374)terest rate is (cid:271)ased o(cid:374) the (cid:448)alue of the i(cid:374)(cid:448)est(cid:373)e(cid:374)t (cid:449)he(cid:374) it"s (cid:272)al(cid:272)ulated. Pv is amount today, fv is future value, r is interest rate, n is number of periods. The value of an amount in the future. Can be payments like rent, can be income like bond payments. Paid at the end of the period, ex. Bond payments at the end of 6 months. Paid at the beginning of the payment period, ex. Rent is paid at the beginning of the month. The present value is the current value of money in the future, ex. Must divide the interest rate by compounding periods per year. R is the rate, and m is the compounding periods per year.
