Iii A Time Value Of Money

Time Value of Money ,[object Object],[object Object]

[object Object],[object Object]

Sale of land ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The Manhattan Islands ,[object Object],[object Object]

Applications ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Required Rate of Return ,[object Object],[object Object],[object Object],[object Object]

Simple Interest ,[object Object],[object Object],[object Object]

Simple Interest ,[object Object],[object Object],[object Object],[object Object]

Compound Interest ,[object Object],[object Object]

Compound Interest ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Benjamin Franklin ,[object Object]

Ibbotson & Sinquefield ,[object Object],[object Object],[object Object]

Four Values ,[object Object],[object Object],[object Object],[object Object]

Future Value of a Single Amount ,[object Object],[object Object],[object Object],[object Object]

Present Value ,[object Object],[object Object],[object Object],[object Object],[object Object]

Present Value (cont…) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Four Key Parameters ,[object Object],[object Object],[object Object],[object Object]

The Multiperiod Case: Future Value ,[object Object],[object Object],[object Object],[object Object]

Future Value and Compounding ,[object Object],[object Object],[object Object]

Future Value and Compounding 0 1 2 3 4 5

Present Value and Compounding ,[object Object],0 1 2 3 4 5 $20,000 PV

[object Object],How Long is the Wait?

[object Object],What Rate Is Enough? About 21.15%.

Special Considerations in TVM ,[object Object],[object Object],[object Object],[object Object]

Annuities ,[object Object],[object Object],[object Object],[object Object]

Perpetuity ,[object Object],[object Object],[object Object]

Growing Perpetuity ,[object Object],[object Object],[object Object]

Perpetuity ,[object Object],… The formula for the present value of a perpetuity is: 0 1 C 2 C 3 C

Perpetuity ,[object Object],[object Object],… 0 1 £15 2 £15 3 £15

Growing Perpetuity ,[object Object],… The formula for the present value of a growing perpetuity is: 0 1 C 2 C ×(1+ g ) 3 C ×(1+ g ) 2

Growing Perpetuity ,[object Object],[object Object],0 … 1 $1.30 2 $1.30 ×(1.05) 3 $1.30 ×(1.05) 2

Annuity ,[object Object],The formula for the present value of an annuity is: 0 1 C 2 C 3 C T C

Annuity ,[object Object],0 1 $400 2 $400 3 $400 36 $400

What is the present value of a four-year annuity of $100 per year that makes its first payment two years from today if the discount rate is 9%? 0 1 2 3 4 5 $100 $100 $100 $100 $327.97 $297.22

PV of Annuity ,[object Object]

Retirement Benefit ,[object Object]

Intra Year Compounding ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Compounding Periods ,[object Object],For example, if you invest $50 for 3 years at 12% compounded semi-annually, your investment will grow to

Effective Annual Interest Rates ,[object Object],The Effective Annual Interest Rate (EAR) is the annual rate that would give us the same end-of-investment wealth after 3 years:

Effective Annual Interest Rates (continued) ,[object Object],[object Object],[object Object]

Continuous Compounding ,[object Object],[object Object],[object Object],[object Object],[object Object]

Amortising a Loan ,[object Object],[object Object],[object Object]

Corporate Finance Lessons ,[object Object],[object Object]

Concepts ,[object Object],[object Object],[object Object],[object Object]

Start Saving! ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Iii A Time Value Of Money

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Iii A Time Value Of Money