THE TIME VALUE OF MONEY
FOCUS
This chapter develops and applies time value formulas. The focus is on using time value concepts to solve business problems.
OUTLINE
I. OUTLINE OF APPROACH
A brief explanation of the fact that money promised in the future is worth less than money in hand today.
Four kinds of problems and using time lines.
II. AMOUNT PROBLEMS
A. The Future Value of an Amount
The expression relating future and present values of a single amount is developed in terms of the future value factor and the associated table.
Problem solving technique is introduced.
Applications include deferred payment terms as the equivalent of cash discounts and the opportunity cost rate.
Financial calculators are introduced and instruction is provided on their use in solving time value problems.
B. The Expression for The Present Value of an Amount
An alternate formulation emphasizing the present value in terms of the future value. More on technique.
III. ANNUITY PROBLEMS
A. Annuities
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