韩山师范学院财务管理课件第九章 The Time Value of Money.ppt

Chapter 9 The Time Valueof Money Determining the Yield on an Investment Formula Table Appendix A1 A2 A3 A4 A5 Present $1,000 $1,000 $1,000 $1,000 $1,000 value 0 1 2 3 4 5 6 7 8 A1 A2 A3 A4 A5 Present $1,000 $1,000 $1,000 $1,000 $1,000 value 0 1 2 3 4 5 6 7 8 Each number represents the end of the period; that is, 4 represents the end of the fourth period. $3,170 $3,993 A1 A2 A3 A4 A5 Present (single amount) $1,000 $1,000 $1,000 $1,000 $1,000 value 0 1 2 3 4 5 6 7 8 Chapter 9 - Outline LT 9-1 Time Value of Money Future Value and Present Value Annuity 2 Questions to Ask in Time Value of Money Problems Adjusting for Non-Annual Compounding Time Value of Money LT 9-2 The basic idea behind the concept of time value of money is: – $1 received today is worth more than $1 in the future OR – $1 received in the future is worth less than $1 today Why? – because interest can be earned on the money The connecting piece or link between present (today) and future is the interest rate Future Value and Present Value LT 9-3 Future Value (FV) is what money today will be worth at some point in the future FV = PV x FVIF FVIF is the future value interest factor (Appendix A) Present Value (PV) is what money at some point in the future is worth today PV = FV x PVIF PVIF is the present value interest factor (Appendix B) Annuity LT 9-4 Annuity: – a stream or series of equal payments to be received in the future The payments are assumed to be received at the end of each period A good example of an annuity is a lottery, where the winner is paid over a number of years 2 Questions to Ask in Time Value of Money Problems LT 9-5 Future Value or Present Value? Future Value: Present (Now) ? Future Present Value: Future ? Present (Now) Single amount or Annuity? Single amount: one-time (or lump) sum Annuity: same amount per year for a number of years Adjusting for