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1、Chapter4FutureValue,PresentValue,andInterestRatesLearningObjectivesUnderstand...LO1TimeandthevalueofpaymentsLO2PresentvalueversusfuturevalueLO3NominalversusrealinterestratesLendershavebeendespisedformostofhistory.Theborrowersmustpayfortheirloans,whilethelendersjustsit
2、arounddoingnothing.Nowonderpeoplehavebeenvilifiedforcharginginterest.Nowonderthat,forcenturies,clericspointedtobiblicalpassagesdamninginterest.Evenphilosophersweighedinagainstthepractice,includ-ingAristotle,whocalledthe“breedingofmoneyfrommoney”unnatural.Afterscorning
3、lendersformillennia,wenowrecognizetheirserviceasafunda-mentalbuildingblockofcivilization.Creditisoneofthecriticalmechanismswehaveforallocatingresources.Withoutit,ourmarket-basedeconomywouldgrindtoahalt.Eventhesimplestfinancialtransaction,likesavingsomeofyourpaycheckea
4、chmonthtobuyacar,wouldbedifficult,ifnotimpossible.Andcorporations,mostofwhichsurvivefromdaytodaybyborrowingtofinancetheiractivities,wouldnotbeabletofunction.Creditissobasicthatwecanfindrecordsofpeoplelendinggrainandmetalfrom5,000yearsago.Creditprobablyexistedbeforecom
5、monmeasuresofvalue,anditpredatescoinageby2,000years.Despiteitsearlyexistenceanditscentralroleineconomictransactions,creditwashardtocomebyuntiltheProtestantReformation.Bythe16thcentury,viewshadchanged,andinterestpaymentsweretoleratedifnotencouraged,solongastheratecharg
6、edwasthoughttobereasonable.Somehistoriansevenpointtothisshiftasakeytothedevelopmentofcapitalismanditsinstitutions.ProtestantEuropeancountriesdiddevelopfasterthanCatholicones,atleastatfirst.1Sincethen,credithasexploded,facilitatingextraordinaryincreasesingeneraleconomi
7、cwell-being.Yetevenso,mostpeoplestilltakeadimviewofthefactthatlenderschargeinterest.Why?Themainreasonfortheenduringunpopularityofinterestcomesfromthefailuretoappreciatethefactthatlendinghasanopportunitycost.Thinkofitfromthepointofviewofthelender.Peoplewhooffercreditdo
8、n’tneedtomakeloans.Theyhavealternatives,andextendingaloanmeansgivingthemup.Whilelenderscaneventually1MaxWebermakesthisargume
