Beruflich Dokumente
Kultur Dokumente
p
3
Ti
Time
Value
V l off
Money
3-1
4.
5.
6.
7.
8.
3-2
Th Time
The
Ti
Value
V l off Money
M
Si
Simple
l Interest
I t
t
Compound Interest
Amortizing a Loan
3-3
Th Interest
The
I t
t Rate
R t
Which would you prefer -- $10,000
today or $10,000 in 5 years?
years
Obviously $10,000
Obviously,
$10 000 today.
today
You already recognize that there is
TIME VALUE TO MONEY!!
MONEY
3-4
Wh TIME?
Why
Why is TIME such an important
element in your decision?
TIME allows you the opportunity to
postpone consumption and earn
INTEREST.
INTEREST
3-5
T
Types
off Interest
I t
t
Simple
Interest
Interest
Interest p
paid (earned)
(
) on any
y previous
p
interest earned, as well as on the
principal borrowed (lent).
3-6
Si
Simple
l Interest
I t
t Formula
F
l
Formula
3-7
SI = P0((i)(n)
)( )
SI:
Simple Interest
P0:
i
i:
I t
Interest
t Rate
R t per Period
P i d
n:
Si
Simple
l Interest
I t
t Example
E
l
Assume
SI
3-8
= P0(i)(n)
= $1,000(.07)(2)
$
( )( )
= $140
Simple
Si
l Interest
I t
t (FV)
What
Future
= P0 + SI
= $1,000 + $140
= $1,140
3-9
Simple
Si
l Interest
I t
t (PV)
What
Present
3-10
Why
Wh Compound
C
d Interest?
I t
t?
Future Va
F
alue (U.S
S. Dollars
s)
3-11
20000
10% Simple
Interest
7% Compound
Interest
10% Compound
Interest
15000
10000
5000
0
20th
Year
30th
Year
Future Value
S
Single
Deposit (Graphic)
(G
)
Assume that you deposit $1,000 at
a compound interest rate of 7% for
2 years.
years
7%
$1,000
FV2
3-12
Future Value
Single
Si l Deposit
D
it (Formula)
(F
l )
FV1 = P0 (1+i)1
= $1,000 (1.07)
=$
$1,070
,
Compound Interest
You earned $70 interest on your $1,000
deposit over the first year.
This is the same amount of interest you
would earn under simple interest
interest.
3-13
Future Value
Single
S
Deposit (Formula)
(
)
FV1
= P0 (1+i)1
= $1,000 (1.07)
= $1,070
FV2
= FV1 (1+i)1
= P0 (1+i)(1+i) = $1,000
$1,000(1.07)(1.07)
= $1,000(1.07)
$1,000(
)2
= P0 ((1+i))2
= $1,144.90
General Future
Value Formula
FV1 = P0(1+i)1
FV2 = P0(1+i)2
etc.
Valuation
V l ti
Using
U i
Table
T bl I
FVIFi,n is found on Table I
at the end of the book.
3-16
Period
1
2
3
4
5
6%
1.060
1.124
1.191
1 262
1.262
1.338
7%
1.070
1.145
1.225
1 311
1.311
1.403
8%
1.080
1.166
1.260
1 360
1.360
1.469
U i
Using
Future
F t
Value
V l Tables
T bl
FV2
= $1,000
$1 000 (FVIF
FVIF7%,2)
= $1,000 (1.145)
= $1,145 [Due to Rounding]
Period
6%
7%
8%
1
1.060
1.070
1.080
2
1.124
1.145
1.166
3
1.191
1.225
1.260
4
1.262
1.311
1.360
5
1.338
1.403
1.469
3-17
TVM on the
th Calculator
C l l t
N:
Number of periods
I/Y:Interest rate per period
PV:
Present value
PMT:
Payment per period
FV:
Future value
CLR TVM: Clears all of the inputs
into the above TVM keys
3-18
U i The
Using
Th TI BAII+
BAII C
Calculator
l l t
Inputs
I/Y
PV
PMT
FV
Compute
3-19
E t i
Entering
the
th FV Problem
P bl
Press:
2nd
3-20
CLR TVM
I/Y
-1000
PV
PMT
CPT
FV
S l i
Solving
the
th FV Problem
P bl
Inputs
Compute
N:
I/Y:
PV:
PMT:
FV:
3-21
-1,000
I/Y
PV
PMT
FV
1,144.90
2 Periods (enter as 2)
7% interest rate per period (enter as 7 NOT .07)
$1,000 (enter as negative as you have less)
Not relevant in this situation (enter as 0)
Compute (Resulting answer is positive)
St
Story
P
Problem
bl
Example
E
l
Julie Miller wants to know how large her deposit
of $10,000 today will become at a compound
annuall interest
i t
t rate
t off 10% for
f 5 years.
years
10%
$10,000
FV5
3-22
St
Story
P
Problem
bl
Solution
S l ti
Calculation
based on Table I:
FV5 = $10,000
$10 000 (FVIF
FVIF10%,
10% 5)
= $10,000 (1.611)
= $16,110
$16 110 [Due to Rounding]
3-23
E t i
Entering
the
th FV Problem
P bl
Press:
2nd
3-24
CLR TVM
10
I/Y
-10000
PV
PMT
CPT
FV
S l i
Solving
the
th FV Problem
P bl
Inputs
Compute
10
-10,000
I/Y
PV
PMT
FV
16,105.10
D bl Your
Double
Y
Money!!!
M
!!!
Quick! How long does it take to
double $5
$5,000
000 at a compound rate
of 12% per year (approx.)?
We will use the Rule
Rule--of
of--72
72
.
3-26
Th RuleThe
Rule
R l -of
off-72
Quick! How long does it take to
double $5
$5,000
000 at a compound rate
of 12% per year (approx.)?
Approx. Years to Double = 72 / i%
72 / 12% = 6 Years
[Actual Time is 6.12 Years]
3-27
S l i the
Solving
th Period
P i d Problem
P bl
Inputs
N
Compute
12
-1,000
+2,000
I/Y
PV
PMT
FV
6.12 years
Present Value
S
Single
Deposit (Graphic)
(G
)
Assume that you need $1,000
$1 000 in 2 years
years.
Lets examine the process to determine
how much you need to deposit today at a
discount rate of 7% compounded annually.
7%
$1,000
PV0
3-29
PV1
Present Value
Single Deposit (Formula)
PV0 = FV2 / (1+i)2
= FV2 / (1+i)2
0
7%
= $1,000 / (1.07)2
= $873.44
$873 44
1
$1,000
PV0
3-30
General Present
Value Formula
PV0 = FV1 / (1+i)1
PV0 = FV2 / (1+i)
(1 i)2
etc.
Valuation
V l ti
Using
U i
Table
T bl II
PVIFi,n is found on Table II
at the end of the book.
Period
1
2
3
4
5
3-32
6%
.943
.890
.840
.792
.747
7%
.935
.873
.816
.763
.713
8%
.926
.857
.794
.735
.681
U i P
Using
Presentt V
Value
l T
Tables
bl
PV2
3-33
= $1,000
$1 000 (PVIF7%,2)
= $1,000 (.873)
= $873 [Due to Rounding]
Period
6%
7%
8%
1
.943
.935
.926
2
.890
.873
.857
3
.840
.816
.794
4
.792
.763
.735
5
.747
.713
.681
S l i
Solving
the
th PV Problem
P bl
Inputs
Compute
N:
I/Y:
PV:
PMT:
FV:
3-34
I/Y
PV
+1,000
PMT
FV
-873.44
2 Periods (enter as 2)
7% interest rate per period (enter as 7 NOT .07)
Compute (Resulting answer is negative deposit)
Not relevant in this situation (enter as 0)
$1,000 (enter as positive as you receive $)
St
Story
P
Problem
bl
Example
E
l
Julie Miller wants to know how large of a
deposit to make so that the money will
gro to $10,000
grow
$10 000 in 5 years
ears at a disco
discount
nt
rate of 10%.
10%
5
$10,000
PV0
3-35
St
Story
P
Problem
bl
Solution
S l ti
3-36
S l i
Solving
the
th PV Problem
P bl
Inputs
Compute
10
I/Y
PV
+10,000
PMT
FV
-6,209.21
T
Types
off Annuities
A
iti
Annuity represents a series of equal
payments
p
y
((or receipts)
p ) occurring
g over a
specified number of equidistant periods.
An
Ordinary
Annuity
3-38
E
Examples
l off Annuities
A
iti
3-39
Mortgage Payments
Retirement Savings
P t off an A
Parts
Annuity
it
(Ordinary Annuity)
End of
Period 1
Today
3-40
End of
Period 2
End of
Period 3
$
$100
$
$100
$
$100
P t off an A
Parts
Annuity
it
(Annuity Due)
Beginning
g
g of
Period 1
$100
$100
$100
Today
3-41
Beginning
g
g of
Period 2
Beginning
g
g of
Period 3
Overview of an
Ordinary Annuity -- FVA
Cash flows occur at the end of the period
. . .
i%
R
R = Periodic
Cash Flow
FVAn =
3-42
R(1+i)n-1 +
R(1+i)n-2 +
... + R(1
R(1+i)
i)1 + R(1
R(1+i)
i)0
FVAn
n+1
Example of an
Ordinary Annuity -- FVA
Cash flows occur at the end of the period
$1,000
$1,000
7%
$1,000
$1,070
$
,
$1,145
FVA3 = $1,000(1.07)
$1 000(1 07)2 +
$1,000(1.07)1 + $1,000(1.07)0 $3,215 = FVA3
=$
$1,145
,
+$
$1,070
,
+$
$1,000
,
= $3,215
3-43
Hi t on Annuity
Hint
A
it Valuation
V l ti
The future
Th
f t
value
l off an ordinary
di
y can be viewed as
annuity
occurring at the end of the last
cash flow period, whereas the
future value of an annuity due
can be viewed as occurring at
the beginning of the last cash
fl
flow
period.
i d
3-44
Valuation
V l ti
Using
U i
Table
T bl III
FVAn
FVA3
= R (FVIFAi%,n)
= $1,000 (FVIFA7%,3)
= $1,000 (3.215) = $3,215
Period
6%
7%
8%
1
1.000
1.000
1.000
2
2.060
2.070
2.080
3
3.184
3.215
3.246
4
4.375
4.440
4.506
5
5.637
5.751
5.867
3-45
S l i
Solving
the
th FVA Problem
P bl
Inputs
Compute
N:
I/Y:
PV:
PMT:
FV:
3-46
-1,000
I/Y
PV
PMT
FV
3,214.90
Overview View of an
Annuity Due -- FVAD
Cash flows occur at the beginning of the period
i%
R
. . .
n1+
FVADn = R(1+i)n + R(1+i)n-1
... + R(1+i)2 + R(1+i)1
= FVAn (1+i)
3-47
n-1
FVADn
Example of an
Annuity Due -- FVAD
Cash flows occur at the beginning of the period
$1,000
$1,000
$1,070
7%
$1,000
$1,145
$1,225
FVAD3 = $1,000(1.07)
$1 000(1 07)3 +
$3,440
$3 440 = FVAD3
2
1
$1,000(1.07) + $1,000(1.07)
=$
$1,225
,
+$
$1,145
,
+$
$1,070
,
= $3,440
3-48
Valuation
V l ti
Using
U i
Table
T bl III
FVADn
FVAD3
= R (FVIFAi%,n)(1+i)
= $1,000 (FVIFA7%,3)(1.07)
= $1,000
$
(3.215)(1.07) = $3,440
$
Period
6%
7%
8%
1
1.000
1.000
1.000
2
2.060
2.070
2.080
3
3.184
3.215
3.246
4
4.375
4.440
4.506
5
5.637
5.751
5.867
3-49
S l i
Solving
the
th FVAD Problem
P bl
Inputs
-1,000
I/Y
PV
PMT
FV
3,439.94
Compute
3-50
Step 2:
Press
ess
2nd
SET
S
keys
eys
Step 3:
Press
2nd
QUIT
keys
Overview of an
Ordinary Annuity -- PVA
Cash flows occur at the end of the period
n+1
. . .
i%
R
R
R = Periodic
Cash Flow
PVAn
3-51
Example of an
Ordinary Annuity -- PVA
Cash flows occur at the end of the period
$1,000
$1,000
7%
$934.58
$873 44
$873.44
$816.30
$1,000
$2,624.32 = PVA3
3-52
PVA3 =
$1,000/(1.07)1 +
$1,000/(1.07)2 +
$1,000/(1.07)3
Hi t on Annuity
Hint
A
it Valuation
V l ti
The presentt value
Th
l off an ordinary
di
y can be viewed as
annuity
occurring at the beginning of the
first cash flow period, whereas
the future value of an annuity
due can be viewed as occurring
at the end of the first cash flow
period.
i d
3-53
Valuation
V l ti
Using
U i
Table
T bl IV
PVAn
PVA3
= R (PVIFAi%,n)
= $1,000 (PVIFA7%,3)
= $1,000 (2.624) = $2,624
Period
6%
7%
8%
1
0.943
0.935
0.926
2
1.833
1.808
1.783
3
2.673
2.624
2.577
4
3.465
3.387
3.312
5
4.212
4.100
3.993
3-54
S l i
Solving
the
th PVA Problem
P bl
Inputs
Compute
N:
I/Y:
PV:
PMT:
FV:
3-55
I/Y
PV
-1,000
PMT
FV
2,624.32
Overview of an
Annuity Due -- PVAD
Cash flows occur at the beginning of the period
PVADn
. . .
i%
R
n-1
R: Periodic
Cash Flow
Example of an
Annuity Due -- PVAD
Cash flows occur at the beginning of the period
$1,000
$1,000
7%
$1,000.00
$ 934.58
$ 873.44
$2,808.02 = PVADn
Valuation
V l ti
Using
U i
Table
T bl IV
PVADn = R (PVIFAi%,n)(1+i)
PVAD3 = $1,000 (PVIFA7%,3)(1.07)
= $1,000
$
(2.624)(1.07) = $2,808
$
Period
6%
7%
8%
1
0.943
0.935
0.926
2
1.833
1.808
1.783
3
2.673
2.624
2.577
4
3.465
3.387
3.312
5
4.212
4.100
3.993
3-58
S l i
Solving
the
th PVAD Problem
P bl
Inputs
I/Y
PV
-1,000
PMT
FV
2,808.02
Compute
3-59
Step 2:
Press
ess
2nd
SET
S
keys
eys
Step 3:
Press
2nd
QUIT
keys
Mi d Flows
Mixed
Fl
Example
E
l
Julie Miller will receive the set of cash
flows below. What is the Present Value
at a disco
discount
nt rate of 10%
10%.
10%
$600
PV0
3-61
H
How
tto S
Solve?
l ?
1. Solve a piece
piece--at
at--a-time
time by
di
discounting
ti each
h piece
i
b k to
back
t t=0.
t 0
groupg
p-at
at--a-time
time by
y first
2. Solve a group
breaking problem into groups of
annuity
y streams and any
y single
g
cash flow groups. Then discount
each group
g
p back to t=0.
3-62
Pi
PiecePiece
-At
At--A-Time
Ti
0
10%
$600
$545.45
$545 45
$495.87
$300.53
$273.21
$ 62.09
G
GroupGroup
-At
At--A-Time
Ti (#1)
0
10%
$600
$1,041.60
$ 573
573.57
57
$ 62.10
$1 677 27 = PV0 of Mixed Flow [Using Tables]
$1,677.27
$600(PVIFA10%,2) =
$600(1.736) = $1,041.60
$400(PVIFA10%,2)(PVIF10%,2) = $400(1.736)(0.826)
$400(1 736)(0 826) = $573.57
$573 57
$100 (PVIF10%,5) =
$100 (0.621) =
$62.10
3-64
G
GroupGroup
-At
At--A-Time
Ti (#2)
0
$400
$400
$400
$200
$200
4
$400
$1,268.00
Pl
Plus
PV0 equals
$1677.30.
$347.20
Plus
$62.10
3-65
5
$100
$
the highlighted
key for starting the
process of solving a
mixed cash flow
p
problem
Press
3-66
the CF key
and down arrow key
y
through a few of the
keys as you look at
the definitions on
the next slide
3-68
Step 1:
Press
Step 2:
Press
Step
p 3: For CF0 Press
CF
2nd
0
CLR Work
Enter
key
keys
keys
y
Step 4:
Step 5:
Step 6:
Step 7:
600
2
400
2
Enter
Enter
Enter
Enter
keys
keys
keys
keys
3-69
Step
p 8: For C03 Press
100
Enter
keys
y
Enter
keys
Step
p 10:
Step 11:
NPV
10
Enter
Step 13:
Press
CPT
R
Result:
lt
P
Present
t Value
V l = $1,677.15
$1 677 15
Press
Press
keys
y
key
keys
key
Frequency of
C
Compounding
ompounding
General Formula:
FVn = PV0(1 + [i/m])mn
3-70
n:
m:
i:
FVn,m:
Number of Years
Compounding Periods per Year
Annual Interest Rate
FV at the end of Year n
PV0:
I
Impact
t off Frequency
F
Julie Miller has $1,000 to invest for 2
Years at an annual interest rate of
12%.
Annual
FV2
= 1,000
1,000(1+ [.12/1])(1)(2)
= 1,254.40
Semi
FV2
= 1,000
1,000(1+ [.12/2])(2)(2)
= 1,262.48
1 262 48
3-71
I
Impact
t off Frequency
F
Qrtly
FV2
= 1,000
1,000(1+ [.12/4])(4)(2)
= 1,266.77
Monthly
FV2
= 1,000
1,000(1+ [.12/12])(12)(2)
= 1,269.73
Daily
FV2
)( )
= 1,000
1 000(1+
1,000(1+
000 [.12/365]
[ 12/365])((365)(2)
= 1,271.20
3-72
2(4)
12/4
-1,000
I/Y
PV
PMT
FV
1266.77
2nd P/Y
2nd
QUIT
12
I/Y
-1000
PV
PMT
2
3-74
CPT
ENTER
2nd xP/Y N
FV
N
Compute
I/Y
PV
PMT
FV
1271.20
QUIT
12
I/Y
-1000
PV
PMT
2
3-76
CPT
2nd xP/Y N
FV
Effective Annual
Interest Rate
Effective Annual Interest Rate
The actual rate of interest earned
(paid) after adjusting the nominal
rate for factors such as the number
of compounding periods per year.
(1 + [ i / m ] )m - 1
3-77
BWs Effective
Annual Interest Rate
Basket Wonders (BW) has a $1,000
CD at the bank. The interest rate
is 6% compounded quarterly for 1
year What is the Effective Annual
year.
Interest Rate (EAR
EAR)?
EAR = ( 1 + 6% / 4 )4 - 1
= 1.0614 - 1 = .0614 or 6.14%!
3-78
Converting
C
ti
to
t an EAR
Press:
3-79
2nd
I Conv
ENTER
ENTER
CPT
2nd
QUIT
C l l t the
Calculate
th paymentt per period.
i d
2.
3.
p
principal
p
p payment
p y
in Period t.
Compute
(Payment - Interest from Step 2)
4
4.
5
5.
St t again
Start
i att Step
St 2 and
d repeat.
t
3-80
A
Amortizing
ti i a Loan
L
Example
E
l
End of
Year
0
Paym ent
In te re s t
P rin c ip a l
---
---
---
E n d in g
B a la n c e
$ 1 0 ,0
000
$ 2 ,7 7 4
$ 1 ,2 0 0
$ 1 ,5 7 4
8 ,4 2 6
2 ,7 7 4
1 ,0 1 1
1 ,7 6 3
6 ,6 6 3
2 ,7 7 4
800
1 ,9 7 4
4 ,6 8 9
2 ,7 7 4
563
2 ,2 1 1
2 ,4 7 8
2 ,7 7 5
297
2 ,4 7 8
$ 1 3 ,8 7 1
$ 3 ,8 7 1
$ 1 0 ,0 0 0
S l i
Solving
for
f the
th Payment
P
t
Inputs
Compute
12
10,000
I/Y
PV
PMT
FV
-2774.10
Amort
ENTER
ENTER
Results:
BAL = 8,425.90
8 425 90*
PRN = -1,574.10*
,
-1,200.00*
INT =
Amort
ENTER
ENTER
Results:
BAL = 6,662.91
6 662 91*
PRN = -1,763.99*
,
-1,011.11*
INT =
Amort
ENTER
ENTER
Results:
BAL =
0 00
0.00
PRN =-10,000.00
,
-3,870.49
INT =
3-86
U f l
Usefulness
off Amortization
A
ti ti
1.
2
2.
3-87