Your Financial Statements and Plans: Future Value Money

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Chapter 2

• Your Financial Statements and Plans Future
  Value Money

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Time Value of Money

• 1 received today is worth more than 1 received
  in the future.
• The sooner your money can earn interest, the
  faster the interest can earn interest.

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Interest and Compound Interest

• Interest -- the return you receive for investing
  money
• Compound interest -- the interest that your
  investment earns on interest

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Future Value

• How much will a sum of money be worth at some
  specified time in the future?
• Classic example is a savings account.

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How interest works
Deposit 500 to earn 8 interest At end of first
year 500 (500 x .08) 540 OR 500 x
(1.08) 540
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Savings after 2 years?
1 500.00 x 1.08 540.00 2 540.00 x
1.08 583.20
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Savings after 4 years?
1 500.00 x 1.08 540.00 2 540.00 x
1.08 583.20 3 583.20 x 1.08 629.86 4 629.86
x 1.08 680.24
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Savings after 40 years?
1 500.00 x 1.08 540.00 2 540.00 x
1.08 583.20 3 583.20 x 1.08 629.86 4 629.86
x 1.08 680.24 5 680.24 x 1.08 .......
You get the picture!
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What is the math really doing?
We multiply 500 by 1.08 four times, so...
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Future Value Equation

• FVn PV (1 i)n
• FV -- future value of the money at the end of
  period n
• PV -- present value, or the money you start
  with
• i -- interest rate for period

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So, in our case..
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You Try It!

• What is the future value of 1000 deposited at 8
  for
• 2 years?
• 4 years?
• 10 years?

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(No Transcript)
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So, in our case../
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How did you do?

• What is the future value of 1000 deposited at 8
  for
• 2 years?
• 4 years?
• 10 years?

FV 1000 x 1.166 1166 FV 1000 x 1.360
1360 FV 1000 x 2.159 2159
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TI BA II Plus Calculator Overview

• First steps
• Turn on
• Set decimal places
• Fix P/Y
• Clear register

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• Set payments per year
• Press 2nd, P/Y
• See 12 (or other)
• Press 1 Enter, CE/C twice

• Set places after the decimal
• Press 2nd, Format
• See DEC2.00
• Press 4 (or greater number), Enter
• See DEC4.0000
• Press CE/C twice
• You should now see 4 places to right of decimal
  place

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• Clearing the TVM registers
• Press CE/C
• Press 2nd
• Press CLR TVM

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Future value computation

• Input
• PV 500
• n 4
• i 8 (not .08)
• Compute FV
• -680.24

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Future value computation

• Input
• PV 1000
• n 4
• i 8 (not .08)
• Compute FV
• -1,360.49

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Im Lost

• See calculator video
• Use tutorial
• Step-by-step
• Repeat as often as you need
• Come see me

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Questions?