工程经济学第2讲-Sean(含答案).pptx

Engineering Economics
Sean, Yi Peng
Zhejiang University of Finance & Economics
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Time value of money
1. Interest: the cost of money
2. Economic equivalent
3. Interest formulas for single cash flows
4. Uneven-payment series
5. Equal-payment series
6. Dealing with gradient series
7. Composite cash flows
8. Today’s take away
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Money is modity, money costs money
The cost of money is established and measured by an interest rate
What is interest rate?
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1. Interest: the cost of money
(1).The time value of money
(2).Elements of transactions involving interest
(3).Method of calculating interest
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(1).The time value of money
An example
What does this example illustrate?
We must connect earning power and purchasing power to the concept of time
It also reflects that money has a time value
Principle of the time value of money
The economic value of a sum depends on when the sum is received
A dollar received today has a greater value than a dollar received at some future time
Market interest rate (used in the text)
Considers the earning power of money as well as the effect of inflation perceived in the marketplace
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Gains achieved or losses incurred by delaying consumption
$100
$106
$108
$104
$106
Case 1: Inflation
Exceeds earing power
Case 2: Earing power
Exceeds Inflation
Your money
Your money
Period 1
Period 0
Cost of refrigerator
Cost of refrigerator
Net loss $2
Net gain $2
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(2).Elements of transactions involving interest
Elements mon to all the types of transactions
Cash flow diagrams
End-of-period convention
In practice, cash flows can occur at the beginning or in the middle of an interest period or at practically any point in time
One of the simplifying assumptions we make in engineering economic analysis is the end-of-period convention
end-of-period convention is the practice of placing all cash flow transactions at the end of an interest period
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Elements
Principal (P)
Interest rate (i)
Interest period (n)
Number of interest per