economy Chapter4 part3_by louy al hami
Upcoming SlideShare
Loading in...5
×

Like this? Share it with your network

Share

economy Chapter4 part3_by louy al hami

  • 520 views
Uploaded on

engineering economy

engineering economy

More in: Education
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
520
On Slideshare
520
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
6
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. CHAPTER 4 Part ….3 The Time Value of Money Created ByEng. Maysa Faroon Gharaybeh
  • 2. Quiz:• Chapter4 (part2 + part3)• 55, 60, 62, 68, 72, 95, 99, 100, 103, 112, 113, 115, 116.
  • 3. Interest Rates That Vary With Time• Find the present equivalent value given a future value and a varying interest rate over the period of the loan ik : the interest rate of the kth period• FN P = ----------------- eq.(4-31) N (1 + ik)• (P/F,i%,N)= 1/(1+i)N eq.(4-2) k+1
  • 4. You can use (F/P,i%,N)= (1+i)N
  • 5. Example:If F4 = $1,000 and i1 = 10% , i2 = 12%, i3= 13% and i4=10% thenP = $1,000* (P/F, 10%, 1)* (P/F, 12%, 1)* (P/F, 13%, 1)* (P/F, 10%, 1)P = $1,000 (0.9091)(0.8929)(0.8850)(0.9091)
  • 6. Nominal And Effective Interest Rates• Nominal Interest Rate (r ) For rates compounded more frequently than one time a year, the stated annual interest rate.• Effective Interest Rate ( i ) For rates compounded more frequently than one year, the actual amount of interest paid.• i = ( 1 + r / M )M - 1 M : the number of compounding periods per year• Annual Percentage Rate ( APR ) percentage rate per period times number of periods. APR = (r/M) x M
  • 7. Method1 Method2This kind of problems can be solved with two ways :1. get the effective interest rate which is compatible with the period forexample i = 16.14 per year compounded yearly and N = 10 yearsOR2. use the effective interest rate per quarter = 6%(nominal per year) / 4(compounded times per year) = 1.5% per quarter compounded quarterlyand N = 10 years * 4 = 40 quarter periods
  • 8. Continuous Compounding and Discrete Cash Flows• Continuous compounding assumes cash flows occur at discrete intervals, but compounding is continuous throughout the interval.• Given nominal per year interest rate r, compounding per year M one unit of principal = [ 1 + (r / M ) ] M• Given M / r = p, [ 1 + (r / M ) ] M = [1 + (1/p) ] rp• Given lim (p ∞) = [ 1 + (1 / p) ] rp = er• ( F / P, r%, N ) = (1+i)N = e rN Then i = e r - 1
  • 9. • End of Chapter 4 PART 3• See you next lecture with a very important revision !!!• Don’t, miss it !!!!!