Honors Finance and Investment
Chapter 7
I. Time Value
A. Process of expressing
1.
2.
B. Payments are either:
1.
2.
C. Time value of money problems may be solved by using:
1.
2.
3.
II. Variables for Time Value of Money Problems
A. PV =
B. FV =
C. PMT =
D. N =
E. I =
III.Future value of $1 takes a single payment in the
present into the future.
A. General equation for the future value of $1:
FV = PV (1 + i)n
1. FV =
2. PV =
3. i =
4. n =
B. Greater Terminal Values
1.
2.
3.
IV. Present value of $1 brings a single payment in the
future back to the present.
A. General equation for the present value of $1:
PV = FV [ 1 / (1 + i)n ]
1. PV =
2. FV =
3. i =
4. n =
B. Lower Present Values
1.
2.
3.
Financial Calculators and Excel
 Express the cash inputs (PV, FV, and PMT) as cash inflows
and cash outflows
 At least one of the cash variables must be
o an inflow (+)
o an outflow (-)
Simple Interest –
Nonannual Compounding –
Periods Less Than a Year –
-