BUS202: Principles of Finance

This video discusses the difference between present value and future value. The time value of money assumes that individuals face either an increase in prices in the economy as time passes in the form of an inflation rate, such as a 4% annual inflation rate, or an opportunity to put their savings in an investment account offering an interest rate, such as 5% per year. Therefore, under the "time value of money" concept, you can see that the $1,000 that you can receive in two years from today does not have the same value as $1,000 today. In fact, it will have a lesser value today. Likewise, if you receive $1,000 today and have the opportunity to put this money in an investment account earning 5% per year, in two years, you will have more than $1,000.

This video discusses how interest rates are applied. Note that a rate of return is usually expressed as a percentage (such as 4%), but when you need to apply it in a calculation, use it in decimal form (0.04 is the decimal form of 4%, and 0.10 is the decimal form of 10%). The same applies to the numerical expressions of interest rates.

This video discusses how interest rates are applied. When you need to calculate the future value of an amount using a simple interest rate, you apply the interest rate only to the initial amount. On the contrary, when you calculate the future value of an amount using the compound interest rate, you apply the interest rate not only to the initial amount but also to amounts of interest earned. Compounding means you earn interest on interest. It is compounding that allows your savings to grow so much over time.

Read this section. You will learn how to calculate the future value of multiple annuities.

This video gives an easy-to-understand demonstration of the power of compounding and why it is so essential that you start saving early.

This video discusses the basic use of the Present Value (PV) formula when only one period is considered.

This video applies the PV formula when different cash flows are considered in different periods.

This video discusses how to re-calculate the PV amounts when the interest rate changes.

Read this section to see how to use present value to determine the best financing option and calculate the present value of an investment portfolio that has multiple cash flows.

Read about ordinary annuities in this section. The business executive may ask how annuities are used in the real world of business? Pay close attention to how the present value of an ordinary annuity is calculated. Then, the future value of an ordinary annuity is discussed. This is followed by a discussion about when annuities are due. Examples of how and when annuities are used include investments and retirement planning for a regular future payment.

This section discusses calculating perpetuities, a special type of annuity where the stream of payments never ends.

This lesson shows you how to determine the yield (or return) on an investment. It also describes the differences between the effective annual rate and the annual percentage rate.

This section discusses calculating the yield of an annuity, which is the total return received stated as a percent. There are two major methods used to calculate the yield.