Finance School of Management Chapter 4: Time Value of Money Objective Explain the concept of compounding and discounting and to provide examples of real life aDDlicatons uesTc
1 Finance School of Management Objective Explain the concept of compounding and discounting and to provide examples of real life applications Chapter 4: Time Value of Money
Finance School of Management Chapter 4 Contents Compounding Perpetual Annuities Frequency of Compounding Loan Amortization Present Value and Exchange rates and Time Discounting Value of money Alternative discounted Inflation and discounted Cash Flow Decision Rules Cash Flow Analysis Multiple cash Flows Taxes and investment Annuities Decisions uesTc
2 Finance School of Management Chapter 4 Contents ❖ Compounding ❖ Frequency of Compounding ❖ Present Value and Discounting ❖ Alternative Discounted Cash Flow Decision Rules ❖ Multiple Cash Flows ❖ Annuities ❖ Perpetual Annuities ❖ Loan Amortization ❖ Exchange Rates and Time Value of Money ❖ Inflation and Discounted Cash Flow Analysis ❖ Taxes and Investment Decisions
Finance School of Management Financial decisions Costs and benefits being spread out over time The values of sums of money at different dates The same amounts of money at different dates have different values uesTc
3 Finance School of Management Financial Decisions – Costs and benefits being spread out over time – The values of sums of money at different dates – The same amounts of money at different dates have different values
Finance School of Management Time Value of money Interest Purchasing power Uncertainty uesTc
4 Finance School of Management Time Value of Money – Interest – Purchasing power – Uncertainty
Finance School of Management impounding Present value(PV) Future value(Fv) Simple interest: the interest on the original principal Compound interest: the interest on the interest Future value factor uesTc
5 Finance School of Management Compounding – Present value (PV) – Future value (FV) – Simple interest: the interest on the original principal – Compound interest: the interest on the interest – Future value factor