Time Value of MoneyTime Value of Money

AGEC 489-689AGEC 489-689

Spring 2010Spring 2010

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2009 2010 2011 2012 2013 ……. 2019

Time Value of Money…Time Value of Money…

Assume it is the year 2009 and you have been given the choice of a single payment of $500 paid to you ten years from now (2019) or a payment of $300 today. Which would you choose?

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Present Value Interest Factor (PIF) Table

PIFr,n = (1 + r) -n

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I would take the $300 today since it has a higher present value, given my discount rate of 6%, than $500 ten years from now.

I would take the $300 today since it has a higher present value, given my discount rate of 6%, than $500 ten years from now.

Present Value Interest Factor (PIF) Table

PIFr,n = (1 + r) -n

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EPIFr,n = [1 – (1 / (1+ r)n)] / r

Equal Payment Present Value Interest Factor (EPIF) Table

EPIFr,n = [1 – (1 / (1+ r)n)] / r

Equal Payment Present Value Interest Factor (EPIF) Table

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Present Value Interest Factor (PIF) Table

PIFr,n = (1 + r) -n

Present Value Interest Factor (PIF) Table

PIFr,n = (1 + r) -n

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EPIFr,n = [1 – (1 / (1+ r)n)] / r

Equal Payment Present Value Interest Factor (EPIF) Table

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EPIFr,n = [1 – (1 / (1+ r)n)] / r

Equal Payment Present Value Interest Factor (EPIF) Table

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Know equations 40, 44 and 45Know equations 40, 44 and 45

Let’s Work Some Let’s Work Some ProblemsProblems