Finance > TEST BANKS > FINA 365 Lectures #9-18 from powerpoints Notes;TOP SCOTE/.,BEST SOLUTION (All)
FINA 365 Lectures #9-18 from powerpoints Notes;TOP SCOTE/.,BEST SOLUTION
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Lecture Organization Present Value and Discounting Perpetuity Time Value Terminology “Time value of money" and "the money value of time" A dollar today is worth more than a doll... ar later“ WHY...? …Every dollar generates interest every year and every period Future and Present Value Terminology PV is the Present Value, that is, the value today. FV is the Future Value, that is, the value at a future date. Denotation: The number of years between the Present Value and the Future Value is represented by “t ”. The rate of interest is represented by “r ”. In general, the Future Value, FVt, of $X invested today (PV) at r% for t periods is FVt= $X x (1 + r) t The expression (1 + r) 2 is the Future Value Interest Factor or Compounding Factor Quick Quiz Q: Deposit $5,000 today in an account paying 12%. How much will you have in 6 years if the interest is compound? A: Multiply the $5,000 by the (FVIF) Future Value Interest Factor = $5000 x (1 + r) t = $5000 x (1 + 0.12) 6 = $9,869.11 Present Value Formula The PV of $X to be received in t periods when the discount rate is r is PV = $X/(1+r) t The relationship between PV and FV [Show More]
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