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Time Value of Money Calculation Examples

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James Woods

on 16 April 2010

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Transcript of Time Value of Money Calculation Examples

Time Value of Money Suppose you quit your
pack-a-day, $5 a day, smoking habit and banked the money.
Once a month you deposit $5 (30)= $150 in an account.
The account earns 1/2% per month.
How much would you have when you retire in 360 months?
F=$150(F|A, i=1/2%, N=360) 150 (1004.5150)=150,677.20 What if you had an account to fund smoking? How much would be there to fund smoking for 360 months? P=$150(P|A, i=1/2%, N=360) 150 (166.7916)=25,018.74 What if you were smarter? What if you knew the price of smokes increased 1/8% per month?

How much would you have in the account at retirement? F=150(F|A_1, i=1/2%, g=1/8%, N=360) F=150(P|A_1, i=1/2%, g=1/8%, N=360)(1.005)^360=240,903
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