FINPLN 2183 1st Edition Lecture 5Outline of Last Lecture I. Financial StatementsII. Financial RatiosOutline of Current Lecture II. Time Value of MoneyCurrent LectureWhy money has time value– Risk of not getting your money back– Risk of inflation– Opportunity cost• You have to give up something when you invest (you can’t use the money for something else)• Because money has time value you should expect to earn interest on an investment• The value of a dollar grows or declines through time• Sometimes referred to as “discount rate”• Simple Interest: interest paid (earned) on only the original amount, or principal, borrowed (lent). These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.• Compound Interest: Interest paid (earned) on any previous interest earned, as well as onthe principal borrowed (lent).• Formula: I = P * R * T– I = Interest earned or interest paid– P = Principle sum of money– R = annual rate of interest– T = Time