Lecture 8 - The Time Value of Money (cont.)

7. Eyeballing it, the first investment will yield more. This is an annuity. Use table 4 to calculate the present value. $110 @ 6% for 3 yrs = 2.673 x 110.

In the second investment, use table 3 for the pv of a single payment. 330 @6% in year 3 = 0.840 x 330

8. In this case, the payments are not even, so the annuity table is useless. You use table 3 twice to find the pv:
pv of 500 @ 10% at end of 2 yrs = 500 x 0.826
pv of 1000 @ 10% at end of 3 yrs = 1000 x 0.751
the sum is 1164

for the second product, use table 4 to find pv of 500 @10% for 3 yrs = 500 x 2.487 = 1243

this should be obvious that the second product is better because you get the return more quickly and the time value of money says that that is more valuable.

9. 5000 now vs 2000 @10% for 3 yrs. use table 4 to get 2000 x 2.487 = ???
this will clearly be less than the 5000

10. this is equivalent of 1% for 24 periods
table typically works with: pv = factor x payment = 21.243 x 1000 = $21,243