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* 1. Find the future value of $10,000 invested now after five years if the annual interest rate is 8 percent. *
* a. What would be the future value if the interest rate is a simple interest rate? *
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* b. What would be the future value if the interest rate is a compound interest rate?

* 2.Find the present value of $7,000 to be received one year from now assuming a 3 percent annual discount interest rate. Also calculate the present value if the $7,000 is received after two years. *

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3. Determine the future value at the end of two years of an investment of $3,000 made now and an additional $3,000 made one year from now if the compound annual interest rate is 4 percent.

4. Determine the present value now of an investment of $3,000 made one year from now and an additional $3,000 made two years from now if the annual discount rate is 4 percent.

5.What is the present value of a loan that calls for the payment of $500 per year for six years if the discount rate is 10 percent and the first payment will be made one year from now? How would your answer change if the $500 per year occurred for ten years?

6. a. What is the annual percentage rate (APR) on a loan that charges interest of .75 percent per month?

b. What is the effective annual rate (EAR) on the loan described in (a)?

...TimeValue of Money
A dollar received today is worth more
than a dollar received in the future
TimeValue of Money
1
Compounding And Future Value
1.
2.
3.
Simple Interest occurs when interest is earned only on the
initial investment
Compound Interest occurs when interest paid on the
investment during the first period is added to the principal;
then, during the second period, interest is earned on this new
sum.
For...

...
TIMEVALUE OF MONEY (CHAPTER 4)
1. Future value (FV), the value of a present amount at a future date, is calculated by applying compound interest over a specific time period. Present value (PV), represents the dollar value today of a future amount, or the amount you would invest today at a given interest rate for a specified time period to equal the future amount. Financial...

...TIMEVALUE OF MONEY FORMULA SHEET
#
TVM Formula For:
1
Future Value of a
Lump Sum. (FVIFi,n)
Compounded/Payments
(m) Times per Year
Annual Compounding
FVn = PV( 1 + i )n
2
FV
1 i
PV =
Present Value of a
Lump Sum. (PVIFi,n)
-n
Future Value of an
Annuity. (FVIFAi,n)
FVAn = CF
4
Present Value of an
Annuity. (PVIFAi,n)
1 - ( 1 + i )-n
PVAn = CF...

...Why is the timevalue of money concept important? In what quantitative decisions might the timevalue of money be used? How do you apply the timevalue of money concept to make decisions in your personal life?
The idea of the timevalue of money is important because of the fundamental assertion that one would rather have X number of dollars now, than later. If the money is taken...

...1. If you deposit $10,000 in a bank account that pays 10 percent interest annually, how much money will be in your account after 5 years?
2. What is the present value of a security that promises to pay you $5,000 in 20 years? Assume that you can earn 7 percent if you were to invest in other securities of equal risk.
3. If you deposit money today into an account that pays 6.5 percent interest, how long will it take for you to double your money?
4. Your parents are...

...Calculate the Terminal Value
Having estimated the free cash flow produced over the forecast period, we need to come up with a reasonable idea of the value of the company's cash flows after that period - when the company has settled into middle-age and maturity. Remember, if we didn't include the value of long-term future cash flows, we would have to assume that the company stopped operating at the end of the five-year projection period.
The...

...Finance21
Prof. Khen Enriquez
This article will explain the financial concept of timevalue of money. The overview provides an introduction to the principles at work when money grows in value over time. These principles include future value of money, present value of money, simple interest and compound interest. In addition, other concepts that relate to factors that can impede the growth in...