MGT338H5 Lecture : Time Value of Money
Document Summary
Class 3 the time value of money. That means, if you invest 1000 today, in 1 year, you will have 1000(1. 10) = 1,100 = We could also ask, what is the present value (pv) (the value now) of 1,100 to be received in 1 year, if market interest rates are. Answer: pv = x such that x(1. 10) = 1100 => x = 1100/1. 10 = 1000. = 1000 => x = 1000/1. 10 = 909. 09 what would you rather have, 909. 09 now or 1000 in. 1500 => 1500(1. 12) = 1680 = 1500 + 180 of interest. Note: 1881. 60 1500 = 381. 60 and 180 x 2 = 360 and 381. 60 . 21. 60 is the interest earned in the second year, on the interest earned in the first year. Benjamin franklin: money makes money, and the money that money makes, makes more money. In 5 years, 1500 => 1500(1. 12)5 = 1500(1. 7623) = 2643. 51.
