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Unit 2

The document discusses the time value of money, illustrating that R100 today is worth more than R109 in a year due to inflation, opportunity cost, and risk factors. It provides a formula for calculating future value (FV) based on present value (PV), interest rate (r), and time period (n). An example shows that R1000 invested at a 10% return for three years grows to R1331.

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5 views2 pages

Unit 2

The document discusses the time value of money, illustrating that R100 today is worth more than R109 in a year due to inflation, opportunity cost, and risk factors. It provides a formula for calculating future value (FV) based on present value (PV), interest rate (r), and time period (n). An example shows that R1000 invested at a 10% return for three years grows to R1331.

Uploaded by

aidenbusinfo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Unit 2.

1: Time value of money

R100 today or R109 in a year.

R100 x 10% = R110

100 x (1 + 10%) = 110

Divide the 109 to get back a year

109/ (1 + 10%)

PV (109) = 99.09

Summary

1. Inflation will reduce the value of R100 in the future, so we wont be


able to buy as much with R100 in one years time
2. There is an opportunity cost because, by delaying when you get the
R100, you have not been able to invest and generate a return on
your money immediately.
3. Lastly, there is a risk that something could go wrong now and 1
years time and you don’t end up receiving the R100.

Lesson 2: Basic Investments


PV today = R1000

10%

R1000 x (1+10%) ^3

= R1331

PV x (1 + r) ^n = FV

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