MAF101 Lecture 2: Finance Notes - Week 2
15 Aug 2018
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Document Summary
Due to the existence of positive interest rates, a dollar today is worth more than a dollar in the future. Present value (pv) dollar amount or value now (t = 0) Future value (fv) dollar amount or value as of any future time point. Interest rate refers to the cost of borrowing money, always expressed as a % per annum unless specified. $ interest amount = principle x interest rate x interest period duration e. g. borrow ,000 (principle) at 5% p. a. In one year have to pay ,000 x . 05 x 1 = in interest + ,000 from principle. Principle constant across life of borrowing/lending contract. Usually applied onto short-term borrowing or lending contracts (within one year) Interest accrued onto principle at end of interest interval. Usually applied onto long term contracts (over one year) Time to maturity (t) the duration (usually in years) of the interest rate arrangement. Nominal interest rate (i) quoted/nominal interest rate per annum (p. a. )
