19 terms

INT=

PVrt

INT

The annual interest paid to you

PVrt

The PV stands for the investment

The R is the interest

The T is the amount o fyears

The R is the interest

The T is the amount o fyears

FV

Is the Future Value or

PV + INT

or

PV (1+rt)

PV + INT

or

PV (1+rt)

FV as function of time T

PV + (r*PV) T

ex:

FV=5000 + 400T

you can graph this

ex:

FV=5000 + 400T

you can graph this

Simple Interest Growth

This is a linear function of time, with intercept given by the present value and slop given by annual interest

Bridge Loan

A short term loan

The primary way that companies and governments raise money is

Selling Bonds

When a bond matures it

returns the original investment to the investor

Bonds usually last

2 years

An investment earns 5% per year and is worth $1,000 after 9 months. Find PV (or the investment)

The way to do this problem is by using only the

FV= PV(1+rt)

1000=X(1+(.05 * 9/12)

FV= PV(1+rt)

1000=X(1+(.05 * 9/12)

If we know the future value (FV) but not the present value (PV) what do we do

PV = FV / (1+ RT)

The "Maturity Value" of a T(Treasury) Bill

This is the amount of money it will pay at the end of its life, that is, upon maturity

How much will a T-Bill sell for if it has a 5% discount rate and it is a 1 year 10,000 dollars bill.

It will sell for 9500 because you subtracted 5% of %10,000 from $10,000

If the bill is 10,000 and you have a 6 month bill which is half of 12 months (1 year) and the discount rate is 5% then

you cut the 5 percent in half to 2.5% and discount the 10000 with that which is $9,750

So if it is 3 months then you multiply the Month / year times the discount rate to find out the actual selling price discount rate.

So if it is 3 months then you multiply the Month / year times the discount rate to find out the actual selling price discount rate.

For Compounded the formula is

FV=PV((1+(r/m))^MT

or

PV=FV / ((1+R/M))^MT

To find M, know that M is how many times per year so if the question states, "Compounded Anually" it is only 1 year so M is 1

or

PV=FV / ((1+R/M))^MT

To find M, know that M is how many times per year so if the question states, "Compounded Anually" it is only 1 year so M is 1

Market System

Private ownership of resources and the use of markets and prices to coordinate and direct economic activity

break even point

an out put at which a firm makes a normal profit but not an economic profit.

Profit

Profit = P - A X Q