BU111 Lecture Notes - Savings Account, Stock Valuation
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BU111 Full Course Notes
Verified Note
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Document Summary
Is one year from today worth the same as today: no! Risk: what if something happens to ability to generate and provide dollar, always increasing element of risk. Inflation: eating away at what can be bought with a dollar, worth less: concept important to leases, mortgages, bonds, retirement contributions, stock valuation, project selection. Single amount pv single period: how much do you have to deposit today to have after one year (assuming 4% interest compounded annually?) Or what is the present value of to be received in one year (assume a 4% discount rate). Single amt pv multiple periods: how much do you have to deposit today to have after three years (assuming 4% interest compounded annually?) Or what is the present value of to be received in three years (assume a 4% discount rate). First payment compounds only twice, second once, third none. First payment compounds three times, second two, third once, etc.
