Summary
Summary, Microeconomics, Investment, Global Edition, ISBN: 9781292215624 ECON202
This document summarizes investment, chapter 16 of the Economics textbook. It is briefly six pages and covers the most important points.
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
Seller
Follow
Content preview
Economics-202- UKZN
Investments
People value their present consumption more than their future consumption hence people
need incentives to delay their consumption.
People would prefer to have their money today grown by X amount to incentivize the
delay in consumption. This is because of positive time preferences.
1 ( 1+ i ) (Compounding factor)
t
o where i is the incentive and t are the future dates
o we want R1 today to be valued in the future(t)at R1 plus incentive(i) for delaying
consumption
General Equation: FV =PV (1+i )t where…
o FV = Future Value (growth on investment)
o PV = Present Value – the current value of your investment
o ( 1+i )t = Compounding Factor
If you are frequently compounding: FV =PV 1+ ( ) i tn
n
o Geometric Equation as n increases, there would be an upward sloping
function (exponential function)
o
EXPONENTIAL FUNCTION
, Economics-
202 -UKZN
FV
Present Value of Future Value: PV = where…
( 1+ i )t
1
is the discount factor
( 1+ i )t
What is the present value of a stream of Future Payments(f)?
PV = i 1−
f
[ 1
( 1+i )t ]
What do I invest today to earn a certain future payment(f) in perpetuity?
f
PV = where i is the current market interest rate.
i
Perpetuity means no maturity date/forever
Hence how much do I invest presently to earn the planned future payments
forever given the current market interest rate?
And f is the stream of future payments
Can you notice the
difference between the
two equations? What
has changed
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Ari12. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R116,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
75057 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now