1. Chapter 4 Intro to Valuation: Time Value of Money
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Chapter 4 Intro to Valuation: Time Value of Money
Introduction/approach to TVM
Future value of lump sum (compounding)
Present value a lump sum (discounting)
Determine interest rate
Determine number of periods
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Chapter 4: Time Value of Money (lump sums)

2. Chapter 4: Time Value of Money (lump sums)
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Clicker Question
If I save $3,000 per year for 40 years, earning 8% per year, how much will I have? Guess….. A. $120,000 B. $180,783 C. $240,178 D. $455,032 E. $777,170
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Chapter 4: Time Value of Money (lump sums)
Chapter 3: Working with Financial Statements

3. Chapter 4: Time Value of Money (lump sums)
“The most powerful force in the universe is compound interest.”
Albert Einstein (attributed)
Uses:
Investing
Borrowing
Valuing
Decision making
Planning
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Chapter 4: Time Value of Money (lump sums)

4. Introduction/approach to TVM
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Introduction/approach to TVM
Importance of TVM
Analytical approach to TVM
Algebraic
TVM “factors” and tables
TVM on financial calculator
TVM with spreadsheet
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Chapter 4: Time Value of Money (lump sums)

5. Introduction/approach to TVM
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Introduction/approach to TVM
Comments on using the calculator
Clearing memory registers
Setting periods to 1 PY
TVM buttons
N, I, PV, PMT, FV
Cash flow buttons
CFj, NPV, IRR
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Chapter 4: Time Value of Money (lump sums)

6. Future value of lump sum (compounding)
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Future value of lump sum (compounding)
What is the future value of $100 invested today for 3 years at 10% interest per year?
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Chapter 4: Time Value of Money (lump sums)

7. Future value of lump sum (compounding)
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Future value of lump sum (compounding)
What is the future value of $100 invested today for 3 years at 10% interest per year?
4/14/2019
Chapter 4: Time Value of Money (lump sums)

8. Present value a lump sum (discounting)
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Present value a lump sum (discounting)
How much would I need to invest today to have $1000 in 2 years at 7% interest rate?
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Chapter 4: Time Value of Money (lump sums)

9. Present value a lump sum (discounting)
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Present value a lump sum (discounting)
How much would I need to invest today to have $1000 in 2 years at 7% interest rate?
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Chapter 4: Time Value of Money (lump sums)

10. Clicker Question (determine interest rate)
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Clicker Question (determine interest rate)
If I have $1,000 today to invest, what return would I require to have $2000 in 8 years? A. 6.19% B. 7.42% C. 8.24% D. 9.05% E. 9.97%
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Chapter 4: Time Value of Money (lump sums)
Chapter 3: Working with Financial Statements

11. Clicker Question (determine number of periods)
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Clicker Question (determine number of periods)
How many years would it take to double my $1,000 investment if I received an interest rate of 6%? A. 6.2 years B. 8.1 years C years D years E years
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Chapter 4: Time Value of Money (lump sums)
Chapter 3: Working with Financial Statements

12. Chapter 4: Time Value of Money (lump sums)
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Algebra for Lump Sums
Solve for interest rate
Solve for N periods
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Chapter 4: Time Value of Money (lump sums)

13. Chapter 4: Time Value of Money (lump sums)
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Clicker Question
When compounding a present value:
a) Future value _______________ as the interest rate increases;
b) Future value ______________ as the number of periods increases.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases
E. decreases; remains the same
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Chapter 4: Time Value of Money (lump sums)
Chapter 3: Working with Financial Statements

14. Chapter 4: Time Value of Money (lump sums)
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Clicker Question
When discounting a future value:
As the interest rate decreases, present value ________; 
As the number of periods decreases, present value ______ . 
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases
E. decreases; remains the same
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Chapter 4: Time Value of Money (lump sums)
Chapter 3: Working with Financial Statements

15. Chapter 4: Time Value of Money (lump sums)
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Clicker Question
At what age do you want to retire (no longer have to work)?
 A. less than 55 years old
B. 55 – 60 years old
C. 60 – 65 years old
D. 65 – 70 years old
E. over 70 years old
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Chapter 4: Time Value of Money (lump sums)
Chapter 3: Working with Financial Statements

16. Chapter 4: Time Value of Money (lump sums)
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Clicker Question
How much money do you plan to have saved (in today’s dollars) by the time you retire? 
A. less than $500,000
B. $500,000 - $750,000
C. $750,000 – $1 million
D. $1 million – $1.5 million
E. over $1.5 million
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Chapter 4: Time Value of Money (lump sums)
Chapter 3: Working with Financial Statements

17. Chapter 4: Time Value of Money (lump sums)
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Clicker Question
What overall, long term return do you expect to get from your future investments?
A. 3 – 7%
B. 7 – 10%
C. 10 – 13%
D. 13 – 16%
E. over 16%
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Chapter 4: Time Value of Money (lump sums)
Chapter 3: Working with Financial Statements

18. Chapter-end Homework Problems
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Chapter-end Homework Problems
Chapter 4
Problems 1, 3, 5, 7, 9, 11, 13
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Chapter 4: Time Value of Money (lump sums)