《财务管理》（英文版） 10.ppt

Chapter 3 Time Value of Money The Time Value of Money The Interest Rate Simple Interest Compound Interest Amortizing a Loan The Interest Rate Obviously, $10,000 today. You already recognize that there is TIME VALUE TO MONEY!! Which would you prefer -- $10,000 today or $10,000 in 5 years? Why TIME? TIME allows you the opportunity to postpone consumption and earn INTEREST. Why is TIME such an important element in your decision? Types of Interest Compound Interest Interest paid (earned) on any previous interest earned, as well as on the principal borrowed (lent). Simple Interest Formula Formula SI = P0(i)(n) SI: Simple Interest P0: Deposit today (t=0) i: Interest Rate per Period n: Number of Time Periods Simple Interest Example SI = P0(i)(n) = $1,000(.07)(2) = $140 Assume that you deposit $1,000 in an account earning 7% simple interest for 2 years. What is the accumulated interest at the end of the 2nd year? Simple Interest (FV) FV = P0 + SI = $1,000 + $140 = $1,140 Future Value is the value at some future time of a present amount of money, or a series of payments, evaluated at a given interest rate. What is the Future Value (FV) of the deposit? Simple Interest (PV) The Present Value is simply the $1,000 you originally deposited. That is the value today! Present Value is the current value of a future amount of money, or a series of payments, evaluated at a given interest rate. What is the Present Value (PV) of the previous problem? Why Compound Interest? Future Value Single Deposit (Graphic) Assume that you deposit $1,000 at a compound interest rate of 7% for 2 years. Future Value Single Deposit (Formula) FV1 = P0 (1+i)1 = $1,000 (1.07) = $1,070 Compound Interest You earned $70 interest on your $1,000 deposit over the first year. This is the same amount of interest you would earn under simple interest. FV1 = P0 (1+i)1 = $1,000 (1.07) = $1,070 FV2 = FV1 (1+i)1 = P0 (1+i)(1+i