BU111 Lecture 6: BU111- Economic Factors Pt. 2
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a year from now is different from today, its worth less because. Economic factors: time value of money: risk. What if the person paying you isn"t there a year from now: real interest. Money has the capacity to earn interest. Can go to the bank and invest that dollar, and earn interest for a year. The value of the dollar might decrease a year from now: concept important to leases, mortgages, bonds, retirement contributions, stock valuation, project selection. 3% compounded annually: fvsa= (1+0. 03)5, fvsa= . 85. Or what is the present value of to be received in one year [assume a 4% discount rate (almost always pv)]: pvsingle amount= fv/(1+r, =pv(1. 04, pv= /(1+0. 04, pv= . 15. Or what is the present value of to be received in. 3 years (assume a 4% discount rate): pvsa= fv/(1+r)n, pvsa= /(1+0. 04)3, pvsa= . 90, different name for an annuity that starts today.
