**Chapter 3** **After studying Chapter 3, you should be able to:** **Understand what is meant by "the time value of money." ** **Understand the relationship between present and future value.** **Describe how the interest rate can be used to adjust the value of cash flows – both forward and backward – to a single point in time. ** **Calculate both the future and present value of: (a) an amount invested today; (b) a stream of equal cash flows (an annuity); and (c) a stream of mixed cash flows. ** **Distinguish between an “ordinary annuity” and an “annuity due.” ** **Use interest factor tables and understand how they provide a shortcut to calculating present and future values. ** **Use interest factor tables to find an unknown interest rate or growth rate when the number of time periods and future and present values are known. ** **Build an “amortization schedule” for an installment-style loan.** **The Time Value of Money** **The Interest Rate** **Which would you prefer – $10,000 today or $10,000 in 5 years? ** **Why TIME?** **TIME allows you the ***opportunity* to postpone consumption and earn INTEREST. **Why is TIME such an important element in your decision?**
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