TIME VALUE OF MONEY. COMPOUNDING Determining the future value of present money.

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Presentation transcript:

TIME VALUE OF MONEY

COMPOUNDING Determining the future value of present money

TIME VALUE OF MONEY DISCOUNTING Determining the present value of future money

Single Payment Compound Amount SPCA

Single Payment Compound Amount SPCA How much will an original deposit grow to by the end of a specified period of time?

Single Payment Compound Amount SPCA What is the future value of $100 that is to be invested for 5 years at 8 % interest compounded annually?

Single Payment Compound Amount SPCA Use the 8% table N = $ x = $146.93

Uniform Series Compound Amount USCA

Uniform Series Compound Amount USCA What sum will a uniform series of deposits grow to at the end of a specified period of time?

Uniform Series Compound Amount USCA Assume a rich uncle deposits $1,000 a year into an account for you. How much will be there in 10 years if it is invested at 9% and compounded annually?

Uniform Series Compound Amount USCA Use the 9% table N=10 $1,000 x = $15,192.93

Sinking Fund Deposit SFD

Sinking Fund Deposit SFD What size deposits must be made in order to reach a goal at the end of a specified period of time?

Sinking Fund Deposit SFD Assume you want to buy a new car for $10,000 in 5 years, how much do you need to deposit each year at 10% interest so you have enough money at that time?

Sinking Fund Deposit SFD 10% table N= 5 $10, x = $1,638.00

Single Payment Present Value SPPV

Single Payment Present Value SPPV What is the present value of a single sum of money to be received at the end of a specified time?

Single Payment Present Value SPPV You expect a gift of $2,000 to be given to you 8 years from now. What is the present value of that $2, assuming a 7% discount rate?

Single Payment Present Value SPPV 7% table N= x = $1,164.02

Uniform Series Present Value USPV

Uniform Series Present Value USPV What is the present value of a series of uniform payments over a specified period of time?

Uniform Series Present Value USPV An investment is being considered that will yield $1, a year at the end of each of the next 8 years. At 7%, what is the current value of this stream of income?

Uniform Series Present Value USPV 7% interest n = 8 $1, x = $8,956.95

Capital Recovery CR

Capital Recovery CR What size payments need to be made to pay back a loan over a specified period of time?

Capital Recovery CR If you have a $4,000 car loan to be paid in 30 equal monthly installments at 1 percent per month, how large must the payments be?

Capital Recovery CR 1% N = 30 $4,000 x = $155.00