COMM 203 Study Guide - Final Guide: Cash Flow, Interest, Compound Interest
Document Summary
The phrase time value of money means a dollar in hand is worth more than a dollar in the future. Interest is earned only on the original principal: For a single period: end-of-period amount = p(1 + r) For multiple periods: use p(r) for each period. Add all periodic interest to find the total interest. Add the total interest to the initial investment to find the future value. Definitions, in finding time value of money. Present value earlier money on a time line. Future value later money on a time line. Interest rate exchange rate between earlier money and later money. Compound interest interest earned in prior periods is reinvested / earning interest on interest. Future value example 1 5. 1. Suppose you invest ,000 for one year at 5%. Suppose you leave the money in for another year. Pv = present value r = period interest rate, expressed as a decimal t = number of periods.
