Unit 4: (3/4/15)

Time value of money

Is a dollar today worth more than a dollar tomorrow?
-Yes, because inflation and opportunity cost.
- This is the reason for charging and paying interest.
Let
V = future value of money
P = resent value of money
r = real interest rate
n = years
K = number of times interest is created per year

simple interest form

V = (1 + r) ^n  multiplied by p

compound interest form

V = (1 + r/k) ^ nk multiplied by p

7 functions of the FED 
1. issues paper currency
2. sets reserve requirements and holds reserves of banks
3. it lends money to banks and charges them interest
4. they are a check cleaning service for banks
5. acts as a personal bank for the government
6. supervises member banks
7. controls the money supply in the government