Presentation 3

Petroleum Project Economics Econ210D Presentation 3 Interest and Time Value of Money Week 3

[object Object],[object Object],[object Object],Simple Interest where: I = Interest, P = Principal, r = interest, n = number of years. Interest and Time Value of Money Week 3

[object Object],[object Object],Compound Interest where: P = Principal, r = interest, n = number of years, A = Principal + Interest, Interest and Time Value of Money Week 3

Future and Present Value ,[object Object],[object Object],[object Object],[object Object],Interest and Time Value of Money Week 3

where: F = Future value I = Investment/Principal r = rate of interest (for each time period) n = number of time periods. Future Value Interest and Time Value of Money Week 3

Present Value where: P = Present value I = Investment/Principal r = rate of interest (for each time period) n = number of time periods. Interest and Time Value of Money Week 3

Future Value of a Single Cash Flow ,[object Object],Interest and Time Value of Money Week 3

Present Value of a Single Cash Flow ,[object Object],Interest and Time Value of Money Week 3

Annuities – Series of Cash flows ,[object Object],[object Object],[object Object],Interest and Time Value of Money Week 3

Annuity Due and an Ordinary Annuity – over 3 years ,[object Object],[object Object],Jan 1 st 2009 $100 $100 $100 $100 $100 $100 Jan 1 st 2009 Jan 1 st 2010 Jan 1 st 2011 Dec 31 st 2011 Dec 31 st 2009 Dec 31 st 2010 Dec 31 st 2011 Interest and Time Value of Money Week 3

Future Value of an Annuity Due At the beginning of each year an investor deposits $100 into an account which offers 12% p.a. compund interest. What is the value of the investment at the end of 3 years? Interest and Time Value of Money Week 3

Future Value of an Annuity Due Interest and Time Value of Money Week 3 Time Year Amount Workings Future Value Jan 1st 2009 0 $100 $140 Jan 1st 2010 1 $100 $125 Jan 1st 2011 2 $100 $112 Dec 31st 2011 3 $0 $0 Total $300 $378

Future Value of an Annuity Due Interest and Time Value of Money Week 3

Future Value of an Annuity Due using Formula ,[object Object],[object Object],[object Object],[object Object],Interest and Time Value of Money Week 3

Future Value of an Ordinary Annuity At the end of each year an investor deposits $100 into an account which offers 12% p.a. compound interest. What is the value of the investment at the end of 3 years? Interest and Time Value of Money Week 3

Future Value of an Ordinary Annuity Interest and Time Value of Money Week 3 Time Year Amount Workings Future Value Jan 1st 2009 0 $0 $0 Dec 31st 2009 1 $100 $125 Dec 31st 2010 2 $100 $112 Dec 31st 2011 3 $100 $100 Total $300 $337

Future Value of an Ordinary Annuity Interest and Time Value of Money Week 3

Future Value of an Ordinary Annuity using Formula ,[object Object],[object Object],[object Object],[object Object],Interest and Time Value of Money Week 3

Question 1 At the beginning of each year an investor deposits $10,000 into an account which offers 10% p.a. compound interest. What is the value of the investment at the end of 4 years? Interest and Time Value of Money Week 3

Question 2 At the end of each year an investor deposits $2,000 into an account which offers 2% p.a. compound interest. What is the value of the investment at the end of 5 years? Interest and Time Value of Money Week 3

Question 3 At the end of each quarter an investor deposits $400 into an account which offers 12% p.a. compound interest. What is the value of the investment at the end of 1 year? Interest and Time Value of Money Week 3

Question 4 At the beginning of each month an investor deposits $100 into an account which offers 12% p.a. compound interest. What is the value of the investment at the end of 6 months? Interest and Time Value of Money Week 3

Present Value of an Annuity Due At the beginning of each year an investor deposits $100 into an account which offers 12% p.a. compund interest. What is the present value of the investment? Interest and Time Value of Money Week 3

Present Value of an Annuity Due Interest and Time Value of Money Week 3 Time Year Amount Workings Present Value Jan 1st 2009 0 $100 $100 Jan 1st 2010 1 $100 $89 Jan 1st 2011 2 $100 $80 Dec 31st 2011 3 $0 $0 Total $300 $269

Present Value of an Annuity Due Interest and Time Value of Money Week 3

Present Value of an Annuity Due Using the formula ,[object Object],[object Object],[object Object],[object Object],Interest and Time Value of Money Week 3

Present Value of an Ordinary Annuity At the end of each year for 3 years an investor deposits $100 into an account which offers 12% p.a. compound interest. What is the present value of the investment? Interest and Time Value of Money Week 3

Present Value of an Ordinary Annuity Interest and Time Value of Money Week 3 Time Year Amount Workings Present Value Jan 1st 2009 0 $0 $0 Dec 31st 2009 1 $100 $89 Dec 31st 2010 2 $100 $80 Dec 31st 2011 3 $100 $71 Total $300 $240

Present Value of an Ordinary Annuity Interest and Time Value of Money Week 3

Present Value of an Ordinary Annuity Using the Formula ,[object Object],[object Object],[object Object],[object Object],Interest and Time Value of Money Week 3

Question 5 At the beginning of each year an investor deposits $10,000 into an account which offers 10% p.a. compound interest. What is the present value of the investment if this is done over 4 years? Interest and Time Value of Money Week 3

Question 6 At the end of each year for 5 years an investor deposits $2,000 into an account which offers 2% p.a. compound interest. What is the present value of the investment? Interest and Time Value of Money Week 3

Question 7 At the end of each quarter an investor deposits $400 into an account which offers 12% p.a. compound interest. What is the present value of the investment if this is done over 1 year? Interest and Time Value of Money Week 3

Question 8 At the beginning of each month for 6 months an investor deposits $100 into an account which offers 12% p.a. compound interest. What is the present value of the investment? Interest and Time Value of Money Week 3

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