Bank: The bank's deposit pays 8 % per year with annual compounding. Bond: The price of the bond is $75. You will receive $100 five years later.
|
|
- Christian Roberts
- 8 years ago
- Views:
Transcription
1 ü 4.4 lternative Discounted Cash Flow Decision Rules ü Three Decision Rules (1) Net Present Value (2) Future Value (3) Internal Rate of Return, IRR ü (3) Internal Rate of Return, IRR Internal Rate of Return is a discount rate that makes PV of future cash inflows equal to PV of cash outflows. In other words, it is the interest rate at which the NPV is equal to zero. Suppose that you are considering to start a given project. You need initial investment for this project. You calculate IRR. If IRR of the project is greater than the opportunity cost of capital, then you should invest in a project. If the IRR is smaller than the opportunity cost of capital, you shouldn't invest. ü Example 1 : Choosing between bank deposit and bond Suppose that you have money in a bank account. You are considering something alternative; buying a bond. Bank: The bank's deposit pays 8 % per year with annual compounding. Bond: The price of the bond is $75. You will receive $100 five years later. Which is better? We are going to apply three decision rules; NPV, FV, IRR. To buy the bond, you give up bank deposit. So when we evaluate NPV of buying bond, the bank's interest rate becomes opportunity cost of capital. ü comparing FV FV value of money in your bank account is given by We compare this with FV of bond. N FV value of money in your bank account is greater than bond's FV. You had better keep your money at the bank account. ü comparing IRR of bond What is the definition of Internal Rate of Return? IRR is obtained by solving the following equation; x 5 Here, variable x is discount rate which makes PV equal to initial investment, i.e. $75. In other words, IRR is interest rate which makes NPV equal to zero. Clear x, solution, ans, IRR solution NSolve x 5 75, x x , x , x , x , x The answer is x = Compare IRR with opportunity cost of capital. IRR is smaller than interest rate of bank account. You had better not buy the bond. We have an equation of higher degree. The equation has a term of the 5th power. So the equation has 5 answers. The fifth answer is meaningful as interest rate. You can solve equation by NSolve[... ]. More specifically, NSolve[ expression = = expression, { unknown variable}] We can take out fifth answer in the following way: Ch04v2.nb 1
2 solution is name for the list of five answers of the equation. By solution[[ 5 ]], we specify the fifth value in the list. ans solution 5 x IRR x. ans Print "IRR ", IRR IRR Internal Rate of Return is equal to 5.922%. Compare IRR with opportunity cost of capital. IRR is smaller than interest rate of bank account. You had better not buy the bond. In order to take value of x from inside of {x Ø }, we need to go through inputting the following; IRR = x /. ans The meaning of the above expression is as follows; name of variable you like to assign = symbol of unknown /. name of variable which represents { } part. We need /. slush and period. ü Example 2 : Borrowing money to buy a car You need to borrow $5,000 to buy a car. Two types of loan are available to you; an example in p.2. type 1. bank offers you a four year loan with interest rate of % per year with annual compounding. You pay principal and interest all at once four years later. type 2. Mr. asks you to pay him back $9,000 in four years. We evaluate the second loan. What are NPV and IRR? The opportunity cost of capital is bank's interest rate. Inflow and outflow of Mr.'s loan are as follows. Cash inflow is $5,000 today. Cash outflow is $9,000 four years later. ü Net Present Value NPV of Mr.' s loan is negative as shown below. Clear NPV NPV N ü Internal Rate of Return IRR is value of x which satisfies the following equation; x 4. Clear x NSolve x 4 0, x x , x , x , x IRR is %. It is higher than the bank loan. Both decision rules conclude that you are better off borrowing from the bank Ch04v2.nb 2
3 ü 4.5 Multiple Cash Flows Suppose that an investment plan has multiple cash inflows as follows. Cash inflows are $1,000 a year from now and $2,000 two years from now. Cash outflow is $2,500 now. We describe multiple cash flows using a diagram called "time line." What value of NPV does this investment plan have? If you deposit money with a bank, interest rate is 10 % per year. So the opportunity cost of capital is 10%. NPV is obtained by calculating the following. Clear NPV NPV ; Print "NPV ", NPV NPV NPV is positive. You should undertake this investment. ü 4.6 nnuities ü PV and FV of nnuities Cash flows of the same amount is called "annuity". Paying 10,000 yen per month for gift certificate of the department store constitutes an annuity. If cash flow starts immediately, it is called an "immediate annuity." If the cash flow starts at the end of the current period, rather than immediately, it is call an "ordinary annuity." Let r be interest rate per month. Suppose you keep paying amount $ each month for a year. Starting today, you pay twelve times. pply monthly compounding. This is an immediate annuity. FV is given as a sum of geometric sequence; FV 1 r t, where 1 r t 1 r 1 r r Next suppose that you will receive amount $ per month times for a year. The first payment is a month from now. What is PV of this ordinary annuity? pply monthly compounding. PV of the annuity is expressed as a sum of geometric sequence. is the first term and 1 is the common ratio. 1 r 1+r PV of the first cash flow = 1 r PV of the second cash flow = ª PV of the last cash flow = 1 r 2 1 r Then PV of this annuity is given by. 1 r t Example Suppose that you will receive amount $100 per month times for a year, starting the next month. Interest rate per month is 1 percent. Then PV of this annuity is $1,5.51 as shown below. In terms of PV, having $1,5.51 today is equivalent to receiving $100 each month for a year Ch04v2.nb 3
4 Clear, r ; 100; r 0.01; Print " 1 r t ", 1 r t r t Mathematica Print[ expression you want to show] For example command if you input Print[ variable name ] then you will see value of variable name. Print[ "expression as you see ", expression to be calculated] You have comma here. You use comma to differentiate the end of one expression from the next one. ü 4.8 Loan mortization Many loans are repaid in equal periodic installments. Part of each payment is interest on the outstanding balance of the loan. nd the remaining part is repayment of principal. fter each payment, the outstanding balance is reduced by the amount of principal repaid. The process of paying off a loan s principal gradually over its term is called loan amortization. Example $100,000 home mortgage loan. nnual percentage rate 9%. To be paid in three equal annual installments. Let c be constant annual payment. This must satisfy the following equation c c c Clear c ; NSolve c c c , c c You must pay $39, per year. t the first payment, Out of this amount, $9,000 is interest; $100, The remaining 30,505.5 is for repayment of principal. The remaining outstanding balance is 100,000-30,505.5 = $69, Interest is calculated on this amount during the next year. 69, = 6, is the next interest payment. The remaining 39, , = 33,251 is for repayment of the principal. The similar calculation is repeated for the third payment ü Example: Buying a car by a one year loan of $1,000 at an PR of % per year to be repaid in equal monthly payments. What is the monthly payment? Clear c ; NSolve 1000 c c, c 1 0. t Mathematica and Mathematics Can we find constant monthly payment in another way, not using NSolve[ ]. Yes, we can. Try to find PV of 1 annuity of $1. Value of annuity of payment of $1 is given by. The constant payment c is equal 1 0. t to 1000 value of annuity Ch04v2.nb 4
5 Clear vannuity vannuity t ; Print "value of $1 annuity of payments of $1 $", vannuity 1000 vannuity value of $1 annuity of payments of $1 $ ü Homework No. 2, Due May 2nd Q1. Consider an example given in Change 80 years to 85 and change $10,000 to $18,000. Calculate NPV, IRR and the number of year long enough to be break even. Hint: You don t have to use financial calculator to solve this question. Q2. p.145, Problem 25 Q3 p.145, Problem 28 Q4. p.146, Problem 36. Hint: interest rate per month = PR. Consider initially there were 13 loans. Sammy paid back of them in a year. Q5. p.146, Problem Ch04v2.nb 5
ü 6.3 The Net Present Value Investment Rule ü 4.6 Annuities
4.6 Annuities PV and FV of Annuities Cash flows of the same amount is called "annuity". Paying 10,000 yen per month for gift certificate of the department store constitutes an annuity. If cash flows start
More informationChapter 6. Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams
Chapter 6 Learning Objectives Principles Used in This Chapter 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams 1. Distinguish between an ordinary annuity and an annuity due, and calculate present
More information1. If you wish to accumulate $140,000 in 13 years, how much must you deposit today in an account that pays an annual interest rate of 14%?
Chapter 2 - Sample Problems 1. If you wish to accumulate $140,000 in 13 years, how much must you deposit today in an account that pays an annual interest rate of 14%? 2. What will $247,000 grow to be in
More informationDiscounted Cash Flow Valuation
Discounted Cash Flow Valuation Chapter 5 Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows Be able to compute
More informationChapter 6 Contents. Principles Used in Chapter 6 Principle 1: Money Has a Time Value.
Chapter 6 The Time Value of Money: Annuities and Other Topics Chapter 6 Contents Learning Objectives 1. Distinguish between an ordinary annuity and an annuity due, and calculate present and future values
More informationFinding the Payment $20,000 = C[1 1 / 1.0066667 48 ] /.0066667 C = $488.26
Quick Quiz: Part 2 You know the payment amount for a loan and you want to know how much was borrowed. Do you compute a present value or a future value? You want to receive $5,000 per month in retirement.
More informationDISCOUNTED CASH FLOW VALUATION and MULTIPLE CASH FLOWS
Chapter 5 DISCOUNTED CASH FLOW VALUATION and MULTIPLE CASH FLOWS The basic PV and FV techniques can be extended to handle any number of cash flows. PV with multiple cash flows: Suppose you need $500 one
More informationPrepared by: Dalia A. Marafi Version 2.0
Kuwait University College of Business Administration Department of Finance and Financial Institutions Using )Casio FC-200V( for Fundamentals of Financial Management (220) Prepared by: Dalia A. Marafi Version
More informationStatistical Models for Forecasting and Planning
Part 5 Statistical Models for Forecasting and Planning Chapter 16 Financial Calculations: Interest, Annuities and NPV chapter 16 Financial Calculations: Interest, Annuities and NPV Outcomes Financial information
More informationChapter 6. Discounted Cash Flow Valuation. Key Concepts and Skills. Multiple Cash Flows Future Value Example 6.1. Answer 6.1
Chapter 6 Key Concepts and Skills Be able to compute: the future value of multiple cash flows the present value of multiple cash flows the future and present value of annuities Discounted Cash Flow Valuation
More informationChapter 6. Time Value of Money Concepts. Simple Interest 6-1. Interest amount = P i n. Assume you invest $1,000 at 6% simple interest for 3 years.
6-1 Chapter 6 Time Value of Money Concepts 6-2 Time Value of Money Interest is the rent paid for the use of money over time. That s right! A dollar today is more valuable than a dollar to be received in
More informationThe Time Value of Money
The Time Value of Money Future Value - Amount to which an investment will grow after earning interest. Compound Interest - Interest earned on interest. Simple Interest - Interest earned only on the original
More informationExercise 6 8. Exercise 6 12 PVA = $5,000 x 4.35526* = $21,776
CHAPTER 6: EXERCISES Exercise 6 2 1. FV = $10,000 (2.65330 * ) = $26,533 * Future value of $1: n = 20, i = 5% (from Table 1) 2. FV = $10,000 (1.80611 * ) = $18,061 * Future value of $1: n = 20, i = 3%
More information1.3.2015 г. D. Dimov. Year Cash flow 1 $3,000 2 $5,000 3 $4,000 4 $3,000 5 $2,000
D. Dimov Most financial decisions involve costs and benefits that are spread out over time Time value of money allows comparison of cash flows from different periods Question: You have to choose one of
More informationKey Concepts and Skills. Multiple Cash Flows Future Value Example 6.1. Chapter Outline. Multiple Cash Flows Example 2 Continued
6 Calculators Discounted Cash Flow Valuation Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows Be able to compute
More informationThe Time Value of Money
The Time Value of Money Time Value Terminology 0 1 2 3 4 PV FV Future value (FV) is the amount an investment is worth after one or more periods. Present value (PV) is the current value of one or more future
More informationCHAPTER 4. The Time Value of Money. Chapter Synopsis
CHAPTER 4 The Time Value of Money Chapter Synopsis Many financial problems require the valuation of cash flows occurring at different times. However, money received in the future is worth less than money
More informationExercise 1 for Time Value of Money
Exercise 1 for Time Value of Money MULTIPLE CHOICE 1. Which of the following statements is CORRECT? a. A time line is not meaningful unless all cash flows occur annually. b. Time lines are useful for visualizing
More informationCALCULATOR TUTORIAL. Because most students that use Understanding Healthcare Financial Management will be conducting time
CALCULATOR TUTORIAL INTRODUCTION Because most students that use Understanding Healthcare Financial Management will be conducting time value analyses on spreadsheets, most of the text discussion focuses
More informationSolutions to Time value of money practice problems
Solutions to Time value of money practice problems Prepared by Pamela Peterson Drake 1. What is the balance in an account at the end of 10 years if $2,500 is deposited today and the account earns 4% interest,
More informationDiscounted Cash Flow Valuation
6 Formulas Discounted Cash Flow Valuation McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Outline Future and Present Values of Multiple Cash Flows Valuing
More informationIntegrated Case. 5-42 First National Bank Time Value of Money Analysis
Integrated Case 5-42 First National Bank Time Value of Money Analysis You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money
More informationChapter 4: Time Value of Money
FIN 301 Homework Solution Ch4 Chapter 4: Time Value of Money 1. a. 10,000/(1.10) 10 = 3,855.43 b. 10,000/(1.10) 20 = 1,486.44 c. 10,000/(1.05) 10 = 6,139.13 d. 10,000/(1.05) 20 = 3,768.89 2. a. $100 (1.10)
More information2. How would (a) a decrease in the interest rate or (b) an increase in the holding period of a deposit affect its future value? Why?
CHAPTER 3 CONCEPT REVIEW QUESTIONS 1. Will a deposit made into an account paying compound interest (assuming compounding occurs once per year) yield a higher future value after one period than an equal-sized
More informationFIN 3000. Chapter 6. Annuities. Liuren Wu
FIN 3000 Chapter 6 Annuities Liuren Wu Overview 1. Annuities 2. Perpetuities 3. Complex Cash Flow Streams Learning objectives 1. Distinguish between an ordinary annuity and an annuity due, and calculate
More information5. Time value of money
1 Simple interest 2 5. Time value of money With simple interest, the amount earned each period is always the same: i = rp o We will review some tools for discounting cash flows. where i = interest earned
More informationChapter 4. The Time Value of Money
Chapter 4 The Time Value of Money 1 Learning Outcomes Chapter 4 Identify various types of cash flow patterns Compute the future value and the present value of different cash flow streams Compute the return
More informationNet Present Value (NPV)
Investment Criteria 208 Net Present Value (NPV) What: NPV is a measure of how much value is created or added today by undertaking an investment (the difference between the investment s market value and
More informationAppendix C- 1. Time Value of Money. Appendix C- 2. Financial Accounting, Fifth Edition
C- 1 Time Value of Money C- 2 Financial Accounting, Fifth Edition Study Objectives 1. Distinguish between simple and compound interest. 2. Solve for future value of a single amount. 3. Solve for future
More informationApplications of Geometric Se to Financ Content Course 4.3 & 4.4
pplications of Geometric Se to Financ Content Course 4.3 & 4.4 Name: School: pplications of Geometric Series to Finance Question 1 ER before DIRT Using one of the brochures for NTM State Savings products,
More informationPractice Problems. Use the following information extracted from present and future value tables to answer question 1 to 4.
PROBLEM 1 MULTIPLE CHOICE Practice Problems Use the following information extracted from present and future value tables to answer question 1 to 4. Type of Table Number of Periods Interest Rate Factor
More informationCompound Interest Formula
Mathematics of Finance Interest is the rental fee charged by a lender to a business or individual for the use of money. charged is determined by Principle, rate and time Interest Formula I = Prt $100 At
More informationActivity 3.1 Annuities & Installment Payments
Activity 3.1 Annuities & Installment Payments A Tale of Twins Amy and Amanda are identical twins at least in their external appearance. They have very different investment plans to provide for their retirement.
More informationFinance CHAPTER OUTLINE. 5.1 Interest 5.2 Compound Interest 5.3 Annuities; Sinking Funds 5.4 Present Value of an Annuity; Amortization
CHAPTER 5 Finance OUTLINE Even though you re in college now, at some time, probably not too far in the future, you will be thinking of buying a house. And, unless you ve won the lottery, you will need
More informationInternational Financial Strategies Time Value of Money
International Financial Strategies 1 Future Value and Compounding Future value = cash value of the investment at some point in the future Investing for single period: FV. Future Value PV. Present Value
More informationPresent Value and Annuities. Chapter 3 Cont d
Present Value and Annuities Chapter 3 Cont d Present Value Helps us answer the question: What s the value in today s dollars of a sum of money to be received in the future? It lets us strip away the effects
More informationChapter 4 Time Value of Money ANSWERS TO END-OF-CHAPTER QUESTIONS
Chapter 4 Time Value of Money ANSWERS TO END-OF-CHAPTER QUESTIONS 4-1 a. PV (present value) is the value today of a future payment, or stream of payments, discounted at the appropriate rate of interest.
More informationA = P (1 + r / n) n t
Finance Formulas for College Algebra (LCU - Fall 2013) ---------------------------------------------------------------------------------------------------------------------------------- Formula 1: Amount
More informationIntroduction. Turning the Calculator On and Off
Texas Instruments BAII PLUS Calculator Tutorial to accompany Cyr, et. al. Contemporary Financial Management, 1 st Canadian Edition, 2004 Version #6, May 5, 2004 By William F. Rentz and Alfred L. Kahl Introduction
More informationrate nper pmt pv Interest Number of Payment Present Future Rate Periods Amount Value Value 12.00% 1 0 $100.00 $112.00
In Excel language, if the initial cash flow is an inflow (positive), then the future value must be an outflow (negative). Therefore you must add a negative sign before the FV (and PV) function. The inputs
More informationChapter 22: Borrowings Models
October 21, 2013 Last Time The Consumer Price Index Real Growth The Consumer Price index The official measure of inflation is the Consumer Price Index (CPI) which is the determined by the Bureau of Labor
More information2 The Mathematics. of Finance. Copyright Cengage Learning. All rights reserved.
2 The Mathematics of Finance Copyright Cengage Learning. All rights reserved. 2.3 Annuities, Loans, and Bonds Copyright Cengage Learning. All rights reserved. Annuities, Loans, and Bonds A typical defined-contribution
More informationChapter 1: Time Value of Money
1 Chapter 1: Time Value of Money Study Unit 1: Time Value of Money Concepts Basic Concepts Cash Flows A cash flow has 2 components: 1. The receipt or payment of money: This differs from the accounting
More informationChapter 4. Time Value of Money. Copyright 2009 Pearson Prentice Hall. All rights reserved.
Chapter 4 Time Value of Money Learning Goals 1. Discuss the role of time value in finance, the use of computational aids, and the basic patterns of cash flow. 2. Understand the concept of future value
More informationChapter 4. Time Value of Money. Learning Goals. Learning Goals (cont.)
Chapter 4 Time Value of Money Learning Goals 1. Discuss the role of time value in finance, the use of computational aids, and the basic patterns of cash flow. 2. Understand the concept of future value
More informationIng. Tomáš Rábek, PhD Department of finance
Ing. Tomáš Rábek, PhD Department of finance For financial managers to have a clear understanding of the time value of money and its impact on stock prices. These concepts are discussed in this lesson,
More informationCalculator (Hewlett-Packard 10BII) Tutorial
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Calculator (Hewlett-Packard 10BII) Tutorial To begin, look at the face of the calculator. Most keys (except a few) have two functions: Each key s primary function
More information( ) ( )( ) ( ) 2 ( ) 3. n n = 100 000 1+ 0.10 = 100 000 1.331 = 133100
Mariusz Próchniak Chair of Economics II Warsaw School of Economics CAPITAL BUDGETING Managerial Economics 1 2 1 Future value (FV) r annual interest rate B the amount of money held today Interest is compounded
More informationSharp EL-733A Tutorial
To begin, look at the face of the calculator. Almost every key on the EL-733A has two functions: each key's primary function is noted on the key itself, while each key's secondary function is noted in
More informationThis is Time Value of Money: Multiple Flows, chapter 7 from the book Finance for Managers (index.html) (v. 0.1).
This is Time Value of Money: Multiple Flows, chapter 7 from the book Finance for Managers (index.html) (v. 0.1). This book is licensed under a Creative Commons by-nc-sa 3.0 (http://creativecommons.org/licenses/by-nc-sa/
More informationHewlett-Packard 10BII Tutorial
This tutorial has been developed to be used in conjunction with Brigham and Houston s Fundamentals of Financial Management 11 th edition and Fundamentals of Financial Management: Concise Edition. In particular,
More informationProblem Set: Annuities and Perpetuities (Solutions Below)
Problem Set: Annuities and Perpetuities (Solutions Below) 1. If you plan to save $300 annually for 10 years and the discount rate is 15%, what is the future value? 2. If you want to buy a boat in 6 years
More informationMathematics. Rosella Castellano. Rome, University of Tor Vergata
and Loans Mathematics Rome, University of Tor Vergata and Loans Future Value for Simple Interest Present Value for Simple Interest You deposit E. 1,000, called the principal or present value, into a savings
More informationPowerPoint. to accompany. Chapter 5. Interest Rates
PowerPoint to accompany Chapter 5 Interest Rates 5.1 Interest Rate Quotes and Adjustments To understand interest rates, it s important to think of interest rates as a price the price of using money. When
More informationCapital Budgeting OVERVIEW
WSG12 7/7/03 4:25 PM Page 191 12 Capital Budgeting OVERVIEW This chapter concentrates on the long-term, strategic considerations and focuses primarily on the firm s investment opportunities. The discussions
More informationICASL - Business School Programme
ICASL - Business School Programme Quantitative Techniques for Business (Module 3) Financial Mathematics TUTORIAL 2A This chapter deals with problems related to investing money or capital in a business
More informationChapter F: Finance. Section F.1-F.4
Chapter F: Finance Section F.1-F.4 F.1 Simple Interest Suppose a sum of money P, called the principal or present value, is invested for t years at an annual simple interest rate of r, where r is given
More informationCHAPTER 4 DISCOUNTED CASH FLOW VALUATION
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Solutions to Questions and Problems NOTE: All-end-of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability
More informationTIME VALUE OF MONEY (TVM)
TIME VALUE OF MONEY (TVM) INTEREST Rate of Return When we know the Present Value (amount today), Future Value (amount to which the investment will grow), and Number of Periods, we can calculate the rate
More informationCHAPTER 9 Time Value Analysis
Copyright 2008 by the Foundation of the American College of Healthcare Executives 6/11/07 Version 9-1 CHAPTER 9 Time Value Analysis Future and present values Lump sums Annuities Uneven cash flow streams
More informationPV Tutorial Using Calculator (Sharp EL-738)
EYK 15-2 PV Tutorial Using Calculator (Sharp EL-738) TABLE OF CONTENTS Calculator Configuration and Abbreviations Exercise 1: Exercise 2: Exercise 3: Exercise 4: Exercise 5: Exercise 6: Exercise 7: Exercise
More informationDiscounted Cash Flow Valuation
BUAD 100x Foundations of Finance Discounted Cash Flow Valuation September 28, 2009 Review Introduction to corporate finance What is corporate finance? What is a corporation? What decision do managers make?
More informationExcel Financial Functions
Excel Financial Functions PV() Effect() Nominal() FV() PMT() Payment Amortization Table Payment Array Table NPer() Rate() NPV() IRR() MIRR() Yield() Price() Accrint() Future Value How much will your money
More informationWeek 4. Chonga Zangpo, DFB
Week 4 Time Value of Money Chonga Zangpo, DFB What is time value of money? It is based on the belief that people have a positive time preference for consumption. It reflects the notion that people prefer
More informationUSING FINANCIAL CALCULATORS
lwww.wiley.com/col APPEDIX C USIG FIACIAL CALCULATORS OBJECTIVE 1 Use a financial calculator to solve time value of money problems. Illustration C-1 Financial Calculator Keys Business professionals, once
More informationUsing Financial Calculators
Chapter 4 Discounted Cash Flow Valuation 4B-1 Appendix 4B Using Financial Calculators This appendix is intended to help you use your Hewlett-Packard or Texas Instruments BA II Plus financial calculator
More informationCHAPTER 5. Interest Rates. Chapter Synopsis
CHAPTER 5 Interest Rates Chapter Synopsis 5.1 Interest Rate Quotes and Adjustments Interest rates can compound more than once per year, such as monthly or semiannually. An annual percentage rate (APR)
More informationAccounting Building Business Skills. Interest. Interest. Paul D. Kimmel. Appendix B: Time Value of Money
Accounting Building Business Skills Paul D. Kimmel Appendix B: Time Value of Money PowerPoint presentation by Kate Wynn-Williams University of Otago, Dunedin 2003 John Wiley & Sons Australia, Ltd 1 Interest
More informationYou just paid $350,000 for a policy that will pay you and your heirs $12,000 a year forever. What rate of return are you earning on this policy?
1 You estimate that you will have $24,500 in student loans by the time you graduate. The interest rate is 6.5%. If you want to have this debt paid in full within five years, how much must you pay each
More informationTexas Instruments BAII PLUS Tutorial
Omar M. Al Nasser, Ph.D., MBA. Visiting Assistant Professor of Finance School of Business Administration University of Houston-Victoria Email: alnassero@uhv.edu Texas Instruments BAII PLUS Tutorial To
More information6: Financial Calculations
: Financial Calculations The Time Value of Money Growth of Money I Growth of Money II The FV Function Amortisation of a Loan Annuity Calculation Comparing Investments Worked examples Other Financial Functions
More informationFinancial Literacy in Grade 11 Mathematics Understanding Annuities
Grade 11 Mathematics Functions (MCR3U) Connections to Financial Literacy Students are building their understanding of financial literacy by solving problems related to annuities. Students set up a hypothetical
More informationAnnuities: Present Value
8.5 nnuities: Present Value GOL Determine the present value of an annuity earning compound interest. INVESTIGTE the Math Kew wants to invest some money at 5.5%/a compounded annually. He would like the
More informationInvestment, Time, and Present Value
Investment, Time, and Present Value Contents: Introduction Future Value (FV) Present Value (PV) Net Present Value (NPV) Optional: The Capital Asset Pricing Model (CAPM) Introduction Decisions made by a
More informationFIN 5413: Chapter 03 - Mortgage Loan Foundations: The Time Value of Money Page 1
FIN 5413: Chapter 03 - Mortgage Loan Foundations: The Time Value of Money Page 1 Solutions to Problems - Chapter 3 Mortgage Loan Foundations: The Time Value of Money Problem 3-1 a) Future Value = FV(n,i,PV,PMT)
More informationCHAPTER 2. Time Value of Money 2-1
CHAPTER 2 Time Value of Money 2-1 Time Value of Money (TVM) Time Lines Future value & Present value Rates of return Annuities & Perpetuities Uneven cash Flow Streams Amortization 2-2 Time lines 0 1 2 3
More informationHOW TO CALCULATE PRESENT VALUES
Chapter 2 HOW TO CALCULATE PRESENT VALUES Brealey, Myers, and Allen Principles of Corporate Finance 11th Edition McGraw-Hill/Irwin Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
More informationCheck off these skills when you feel that you have mastered them.
Chapter Objectives Check off these skills when you feel that you have mastered them. Know the basic loan terms principal and interest. Be able to solve the simple interest formula to find the amount of
More informationLecture Notes on the Mathematics of Finance
Lecture Notes on the Mathematics of Finance Jerry Alan Veeh February 20, 2006 Copyright 2006 Jerry Alan Veeh. All rights reserved. 0. Introduction The objective of these notes is to present the basic aspects
More informationAppendix. Time Value of Money. Financial Accounting, IFRS Edition Weygandt Kimmel Kieso. Appendix C- 1
C Time Value of Money C- 1 Financial Accounting, IFRS Edition Weygandt Kimmel Kieso C- 2 Study Objectives 1. Distinguish between simple and compound interest. 2. Solve for future value of a single amount.
More informationChapter 3. Understanding The Time Value of Money. Prentice-Hall, Inc. 1
Chapter 3 Understanding The Time Value of Money Prentice-Hall, Inc. 1 Time Value of Money A dollar received today is worth more than a dollar received in the future. The sooner your money can earn interest,
More informationLecture Notes on Actuarial Mathematics
Lecture Notes on Actuarial Mathematics Jerry Alan Veeh May 1, 2006 Copyright 2006 Jerry Alan Veeh. All rights reserved. 0. Introduction The objective of these notes is to present the basic aspects of the
More informationProblems on Time value of money January 22, 2015
Investment Planning Problems on Time value of money January 22, 2015 Vandana Srivastava SENSEX closing value on Tuesday: closing value on Wednesday: opening value on Thursday: Top news of any financial
More informationLease Analysis Tools
Lease Analysis Tools 2009 ELFA Lease Accountants Conference Presenter: Bill Bosco, Pres. wbleasing101@aol.com Leasing 101 914-522-3233 Overview Math of Finance Theory Glossary of terms Common calculations
More informationTime Value of Money PAPER 3A: COST ACCOUNTING CHAPTER 2 BY: CA KAPILESHWAR BHALLA
Time Value of Money 1 PAPER 3A: COST ACCOUNTING CHAPTER 2 BY: CA KAPILESHWAR BHALLA Learning objectives 2 Understand the Concept of time value of money. Understand the relationship between present and
More informationHow To Calculate A Pension
Interests on Transactions Chapter 10 13 PV & FV of Annuities PV & FV of Annuities An annuity is a series of equal regular payment amounts made for a fixed number of periods 2 Problem An engineer deposits
More informationCHAPTER 4 DISCOUNTED CASH FLOW VALUATION
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Answers to Concepts Review and Critical Thinking Questions 1. Assuming positive cash flows and interest rates, the future value increases and the present value
More informationTopics Covered. Ch. 4 - The Time Value of Money. The Time Value of Money Compounding and Discounting Single Sums
Ch. 4 - The Time Value of Money Topics Covered Future Values Present Values Multiple Cash Flows Perpetuities and Annuities Effective Annual Interest Rate For now, we will omit the section 4.5 on inflation
More informationSUPPLEMENTARY NOTES. For examination purposes, the following amendments shall take effect from 3 June 2011: 1. Chapter 12, Page 329, Chapter Outline
SUPPLEMENTARY NOTES ChFC01 Fundamentals Of Financial Planning And Investments Date Of Issue : 3 May 2011 [Applicable to 1 st Edition (2003), Re-printed March 2006 version and earlier] The following amendments
More informationThe Time Value of Money
The following is a review of the Quantitative Methods: Basic Concepts principles designed to address the learning outcome statements set forth by CFA Institute. This topic is also covered in: The Time
More informationOrdinary Annuities Chapter 10
Ordinary Annuities Chapter 10 Learning Objectives After completing this chapter, you will be able to: > Define and distinguish between ordinary simple annuities and ordinary general annuities. > Calculate
More informationTime Value of Money. Background
Time Value of Money (Text reference: Chapter 4) Topics Background One period case - single cash flow Multi-period case - single cash flow Multi-period case - compounding periods Multi-period case - multiple
More informationFuture Value. Basic TVM Concepts. Chapter 2 Time Value of Money. $500 cash flow. On a time line for 3 years: $100. FV 15%, 10 yr.
Chapter Time Value of Money Future Value Present Value Annuities Effective Annual Rate Uneven Cash Flows Growing Annuities Loan Amortization Summary and Conclusions Basic TVM Concepts Interest rate: abbreviated
More informationHewlett-Packard 10B Tutorial
To begin, look at the face of the calculator. Every key (except one, the gold shift key) on the 10B has two functions: each key's primary function is noted in white on the key itself, while each key's
More informationThe explanations below will make it easier for you to use the calculator. The ON/OFF key is used to turn the calculator on and off.
USER GUIDE Texas Instrument BA II Plus Calculator April 2007 GENERAL INFORMATION The Texas Instrument BA II Plus financial calculator was designed to support the many possible applications in the areas
More informationFinite Mathematics. CHAPTER 6 Finance. Helene Payne. 6.1. Interest. savings account. bond. mortgage loan. auto loan
Finite Mathematics Helene Payne CHAPTER 6 Finance 6.1. Interest savings account bond mortgage loan auto loan Lender Borrower Interest: Fee charged by the lender to the borrower. Principal or Present Value:
More informationTexas Instruments BAII Plus Tutorial for Use with Fundamentals 11/e and Concise 5/e
Texas Instruments BAII Plus Tutorial for Use with Fundamentals 11/e and Concise 5/e This tutorial was developed for use with Brigham and Houston s Fundamentals of Financial Management, 11/e and Concise,
More informationEXAM 2 OVERVIEW. Binay Adhikari
EXAM 2 OVERVIEW Binay Adhikari FEDERAL RESERVE & MARKET ACTIVITY (BS38) Definition 4.1 Discount Rate The discount rate is the periodic percentage return subtracted from the future cash flow for computing
More informationChapter The Time Value of Money
Chapter The Time Value of Money PPT 9-2 Chapter 9 - Outline Time Value of Money Future Value and Present Value Annuities Time-Value-of-Money Formulas Adjusting for Non-Annual Compounding Compound Interest
More information