Banking notes
, Chapter 3
The Time Value of
Money
3.1
, After studying Chapter 3,
you should be able to:
1. Understand what is meant by "the time value of money."
2. Understand the relationship between present and future value.
3. Describe how the interest rate can be used to adjust the value of cash flows both
forward and backward to a single point in time.
4. Calculate both the future and present value of: (a) an amount invested today;
(b) a stream of equal cash flows (an annuity); and (c) a stream of mixed cash
flows.
5. Distinguish between an and an
6. Use interest factor tables and understand how they provide a
shortcut to calculating present and future values.
7. Use interest factor tables to find an unknown interest rate or growth rate
when the number of time periods and future and present values are known.
8. Build an for an installment-style loan.
3.2
, The Time Value of Money
• The Interest Rate
• Simple Interest
• Compound Interest
• Amortizing a Loan
• Compounding More Than
Once per Year
3.3
, Chapter 3
The Time Value of
Money
3.1
, After studying Chapter 3,
you should be able to:
1. Understand what is meant by "the time value of money."
2. Understand the relationship between present and future value.
3. Describe how the interest rate can be used to adjust the value of cash flows both
forward and backward to a single point in time.
4. Calculate both the future and present value of: (a) an amount invested today;
(b) a stream of equal cash flows (an annuity); and (c) a stream of mixed cash
flows.
5. Distinguish between an and an
6. Use interest factor tables and understand how they provide a
shortcut to calculating present and future values.
7. Use interest factor tables to find an unknown interest rate or growth rate
when the number of time periods and future and present values are known.
8. Build an for an installment-style loan.
3.2
, The Time Value of Money
• The Interest Rate
• Simple Interest
• Compound Interest
• Amortizing a Loan
• Compounding More Than
Once per Year
3.3
