Management and Organizational Studies 2310A/B Chapter Notes - Chapter 5: Discounting, Compound Interest, Investment

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Nicholas Kahnert

Document Summary

Chapter 5: introduction to valuation: the time value of money. Future value (fv) = amount an investment is worth after one or more periods, also compound value. Future value is the cash value of an investment sometime in the future. If you invest for one period at an interest rate of r, your investment grows to (1+r) per dollar invested, in example r is 10% so investment grows to (1+0. 10) = 1. 1$ per dollar invested. Compounding = process of accumulating interest in an investment over time to earn more interest. Interest on interest = interest earned on the reinvestment of previous interest payments. Compound interest = interest earned on both the initial principal and the interest reinvested from prior periods. Simple interest = interest earned only on the original principal amount invested interest is not reinvested. Future value = x (1 + r)t. Expression (1 + r)t is called the future value interest factor.