Management and Organizational Studies 2310A/B Midterm: MOS 2310 – Chapter 5

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Chapter 5 introduction to valuation: the time value of money. Must be able to determine the value today of cash flows that are expected in the future. A dollar in hand today is worth more than a dollar promised at some time in the future: the time value of money depends on both the amount and the time at which it is received. If you have to wait for your money, you may need some sort of return to compensate us for these cons^ Future value (fv): the amount an investment is worth after one or more periods. Ex: if you invest for one period and earn 10% interest, then the is your principal and the is your fv of that principal plus interest. In general, if you invest for one period at an interest rate of r, your investment grows to (1+r) per dollar invested.