Chapter 3 Time value of Money 3-1
3-1 Chapter 3 Time Value of Money
The Time Value of Money The interest rate o Simple Interest o Compound Interest n Amortizing A Loan 3-2
3-2 The Time Value of Money The Interest Rate Simple Interest Compound Interest Amortizing A Loan
The interest rate Which would you prefer --$10,000 today or $10,000 in 5 years? Obviously, $10,000 today You already recognize that there is TIME VALUE TO MONEY! 3-3
3-3 Obviously, $10,000 today. You already recognize that there is TIME VALUE TO MONEY!! The Interest Rate Which would you prefer -- $10,000 today or $10,000 in 5 years?
Why TIME? Why is TIME such an important element in your decision? TIME allows you the opportunity to postpone consumption and earn INTEREST 3-4
3-4 TIME allows you the opportunity to postpone consumption and earn INTEREST. Why TIME? Why is TIME such an important element in your decision?
Types of Interest n Simple Interest Interest paid (earned on only the original amount, or principal borrowed(lent) o Compound Interest Interest paid (earned)on any previous interest earned. as well as on the principal borrowed (lent) 3-5
3-5 Types of Interest Compound Interest Interest paid (earned) on any previous interest earned, as well as on the principal borrowed (lent). Simple Interest Interest paid (earned) on only the original amount, or principal borrowed (lent)