Management and Organizational Studies 3310A Chapter Notes - Chapter 5: Interest, Cash Flow, Nominal Interest Rate

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3310A
• Professor: Bill Dawson

Document Summary

Financial decisions require comparisons of cash payments at different dates. Since a dollar today does not have the same value as a dollar tomorrow, a relationship has to be established to compare cash flows at different times. Future value is the amount to which a present value will grow after earning interest. Thus, previous period"s earned interest can also earn interest on the next period. Present value is the value today of a future cash flow. How much do you need to invest today into an account paying compound interest at the rate of. 5% per year, in order to receive . 45 at the end of eight years? (ans: fv= i x (1+r)^t thus: You have been offered million five years from now. If the interest rates is expected to be. Use the tables look up the discount factor. Pv = 712. 99; t = 5 year period; fv=1000.