Friday, June 4, 2010

The Time Value of Money

Present Value How much you got now.
Future Value How much what you got now grows to when compounded at a given rate

I give you 100 dollars. You take it to the bank. They will give you 10% interest per year for 2 year.

The Present Value = $ 100
Future Value = $121.
FV= PV (1 + i )N

FV = Future Value
PV = Present Value
i = the interest rate per period
n= the number of compounding periods

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