Time Value of Money 1

Time Value of Money

Future Value= PV(1 + I)T How much will I have…..Pages 580-581

RATE 10 20 30 40 504% $1.48 $2.19 $3.24 $4.80 $7.116% $1.79 $3.21 $5.74 $10.29 $18.428% $2.16 $4.66 $10.06 $21.72 $46.9010% $2.59 $6.73 $17.45 $45.26 $117.3912% $3.11 $9.65 $29.96 $93.05 $289.0014% $3.71 $13.74 $50.95 $188.88 $700.2316% $4.41 $19.46 $85.85 $378.72 $1,670.70

YEARS

David McGrady:NOTE PV IS ENTERED AS NEGATIVE AMOUNT.

David McGrady:OVER SHORT PERIODS OF TIME, RATE OF RETURN MAKES LITTLE DIFFERENCE.

David McGrady:OVER LONG PERIODS OF TIME, RATE OF RETURN MAKES A HUGE DIFFERENCE!!!

Time Value of Money 2

Time Value of Money

Present Value: what is it worth to me now…Pages 582-583

RATE 10 20 30 40 504% $0.68 $0.46 $0.31 $0.21 $0.146% $0.56 $0.31 $0.17 $0.10 $0.058% $0.46 $0.21 $0.10 $0.05 $0.0210% $0.39 $0.15 $0.06 $0.02 $0.0112% $0.32 $0.10 $0.03 $0.01 $0.0014% $0.27 $0.07 $0.02 $0.01 $0.0016% $0.23 $0.05 $0.01 $0.00 $0.00

YEARS

David McGrady:NOTE PV IS ENTERED AS NEGATIVE AMOUNT.

David McGrady:WITH A HIGH DISCOUNT RATE, $1 IN SEVERAL YEARS IS ALMOST WORTHLESS.

Time Value of Money 3

Time Value of Money Future/Present Value

Using calculator or Microsoft Excel N = Number of Periods I = Rate

In calculator 7% = 7; in Microsoft Excel = .07 PV = What’s Invested Now

Negative FV = What You Will Have In Future

Solving for: N I

N and I must be expressed in same terms

Time Value of Money 4

Time Value of Money Functions

FV: what is dollar amount in future? PV: what is value today? NPER: number of periods RATE: rate of return