1
Q
Time value of money
A
$1 today > $1 tomorrow
2
Q
Compounding
A
Principal grows over time and gains interest.
3
Q
Ex:
100 = (1+.08)^t
What’s the next step?
A
ln(100) = t * ln(1.08)
4
Q
What to do with “r” when compounding daily/monthly/quarterly/yearly?
A
Daily: r/365
Monthly: r/12
Quarterly: r/4
Yearly: r
5
Q
Continuous Compounding:
A
FV = PVe^R*T
R = ANNUAL rate
T = Years
6
Q
FV = PV (1 + r)^t
A
r - term rate
t - # of periods
FIN 3200
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