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the Net Present Value is positive, so the investment should be purchased.,In the oneperiod case, the formula for NPV can be written as: NPV = –Cost + PV,Suppose you has put $500 in a savings account at the bank. The account earns 7%, compounded annually. How much will you have at the end of 3 years?,How much will you have at the end of 3 years if simple interest is used?,500+5007%3=605,500(1+7%)3=612.52,4.2 The Multiperiod Case,The general formula for the future value of an investment over many periods can be written as: FV = C0(1 + r)T Where C0 is cash flow at date 0, r is the appropriate interest rate, and T is the number of periods over which the cash is invested.,Future Value and Compounding,Present Value and Discounting,How much would an investor have to set aside today in order to have $20,000 five years from now if the current rate is 15%?,$20,000,PV,In the multiperiod case, the formula for the present can be written as:,How Long is the Wait?,If we deposit $5,000 today in an account paying 10%, how long does it take to grow to $10,000?,What Rate Is Enough?,Assume the total cost of a college education will be $50,000 when a child enters college in 12 years. His/Her parents have $5,000 to invest today. What rate of interest must his/her parents earn on their investment to cover the cost of the child’s education?,About 21.15%,At 9 percent interest, how long does it take to double your money? To quadruple it?,Have a try!!!,Multiple Cash Flows,Consider an investment that pays $200 one year from no