HTA 602 Lecture Notes - Lecture 5: Incubation Period, Interest, Compound Interest

• School: Ryerson University
• Department: Hospitality and Tourism Management
• Course: HTA 602
• Professor: Bernard Mc Evoy

Document Summary

Present value earlier money on a time line. Future value later money on a time line. Interest rate (cid:498)exchange rate(cid:499) between earlier money and later money. Future value example 1 5. 1: discount rate/compound rate, cost of capital, opportunity cost of capital, required return. Suppose you invest for one year at 5% per year. What is the future value in one year: interest = 1000 (. 05) = 50, value in one year = principal + interest = 1000 + 50 = 1050, future value (fv) = 1000 (1 + 0. 5) = 1050. Suppose you leave the money in for another year. How much will you have two years from now: fv = 1000 (1. 05)(1. 05) = 1000 (1. 05)^2 = 1102. 50. Fv = pv (1 +r)^t: fv = future value, pv = present value, r = period interest rate, expressed as a decimal, t = number of periods. Future value interest factor = (1 + r)^t.