( ) ( ) 1. Newman & The Money Machine. Lecture 3. Thursday Feb 5 th. Time Value of Money 2. Money Machine Question 2. Money Machine Question 2

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1 Lectue 3. Thusday Feb 5 th Time Value of Moey Newma & The Moey Machie Gives pizes ow (PV) o i the futue () Will covet pizes ow (PV) to moey i the futue () Will covet pizes i the futue () to moey ow (PV) Uses a iteest ate of 0 pecet compoudig aually 00% Guaatee so isk fee 3 sets of $00 A. Oe i oe yea ( ) B. Aothe i two yeas, ( ) ad C. The thid i thee yeas ( 3 ) Newma wats cash ow How much would Newma get? A $00 $90.9 ( + 0.0).0 B $00 $8.6 ( + 0.0). C 3 $00 3 $ ( ) $ $8.6 + $75.3 $8.68 A eve amout eceived at egula itevals is called a auity Let A be the vaiable fo the eve egula amout eceived i.e. $00 i this Questio PV A A + PV B A ( ) PV C A + ( ) + ( ) 3 A + + A ( ) 3 + ( + ) ( + ) ( + ) 3 See page 0 i the text

2 This gives us fomula 3.8, the Peset value of a auity of amout A ove yeas A ( + ) Usig fomula 3.8 A $00; 3 ad ( ) ( ) ( + ) ( ) { } { } Addig ad Subtactig Auities paymets C. Ed of the thid yea ad D. Ed of the fouth yea C $00 3 $ ( ) PV.6 ( + 0.0) $00 $68.30 D Addig ad Subtactig Auities of Amout A$00 A ( + ) $00 $ ( + 0.0) $36.98 $90.9 $8.6 $3.3 PV PV B Addig ad Subtactig Auities $00 $ ( + 0.0) $00 $ ( + 0.0) $36.98 $73.55 $3.3

3 Addig ad Subtactig Auities Paymets i yeas 3 ad Optios - -PV A -PV B PV D +PV C Moey Machie Questio 3 Thee paymets of $00 (A) A.Oe i two yeas B.Aothe i thee yeas C.The thid i fou yeas Use the Auity Fomula to calculate the peset value of the pize. Moey Machie Questio 3 Pess fo $90.9 Pess fo $8.68 Pess 3 fo $6.08 Pess fo $73.35 Usig a Calculato (HP0B) Stoes # of peiods N ( + ) Aual Iteest Rate I/YR # of paymets i a yea P/YR A the eve egula amout PMT Calculatio Mode BEG/END Usig a Calculato (HP0B) Stoes # of peiods N ( + ) Aual Iteest Rate I/YR # of paymets i a yea P/YR A the O eve HP egula ete amout PMT Calculatio 0 fo 0% Mode BEG/END Usig a Calculato (HP0B) Stoes # of peiods N ( + ) Aual Iteest Rate I/YR # of paymets i a yea P/YR A the eve egula amout PMT Calculato Calculatio will Mode BEG/END calculate 3

4 Usig a Calculato (HP0B) Stoes # of peiods N ( + ) Aual Iteest Rate I/YR # of paymets i a yea P/YR A the eve egula amout PMT Calculatio Toy s Mode Loa BEG/END ete 5*5 fo I/YR ad 5 fo P/YR Usig a Calculato (HP0B) Check BEG/END mode Fo the Peset Value hit PV Fo the Futue Value hit Usig a Calculato - Saity Check Is the aswe easoable? paymets $00 ove yeas must be less tha $00 A must be geate tha $00 Both geate tha zeo The RCL key to check values Aoucemets # all/ Sed me a with you coect ad cuet addess adew.d.hall@veizo.et adhall@som.umass.edu Aoucemets # - OWL Quiz # is ow available o OWL It is due Tuesday Feb 0 th OWL Web Page Complete the Calculato Suvey o OWL (ASAP) Aoucemets #3 - Office Hous Office Hous will be: Wed :30 to 3:00 AND Tue :00 to :00 Locatio: Atium of SOM. By Appoitmet: Wed befoe :30 - To make a appoitmet - by latest 8:00 o Tue) Thu :00 to :00 - Let me kow if you wat to see me by the ed of class o Thu

5 Aoucemets # - Calculato Get Oe Stat Readig the Maual Expeimet with usig it Big it to evey class Check out Couse Web Page fo help choosig oe ad usig oe 5