2 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 present value. The Fed also influences another rate, the Federal Funds Rate. This is the interest rate charged by banks when banks borrow overnight from each other (Not from Federal Reserve) The Federal Reserve Board of Directors uses several tools to influence market activity. These include: Discount Window Lending: The Federal Reserve Board votes whether to raise or lower the official government discount rate; this is the interest rate charged by federal district banks to member public and private banks. Reserve Requirements: The Fed sets the reserve requirement on member bank accounts; this regulates the amount of loans that banks may lend to business and individual borrowers Open Market Operations: The Fed buys and sells marketable currencies and government securities in the global financial marketplace; this affects supply and demand conditions.
3 FORMULA 4.1 & EXAM 2 QUESTION: ROR1
4 GEOMETRIC MEAN / ARITHMETIC MEAN OR RETURNS
5 ROR A ROR G (TR33) So, to get the average annual rate of return we simply take the average of the returns for the 3 years (Formula 4.3):
6 BASIS POINT (FF6) 100 Basis Points (bp) = 1% 5% is 5*100 = 500 bp, 0.50% is 0.50*100 = 50 basis points Ex: You targeted 12.3% return but missed by 240 basis points bp 240 bp= 990 basis points990 basis points = 9.9%
7 TIME VALUE OF MONEY FV = Future value PV = Present value N = Number of Periods r = Discount Rate Annuities Amortization
8 TIME LINES r% CF 0 CF 1 CF 2 CF 3 Show the timing of cash flows. Tick marks occur at the end of periods, so Time 0 is today; Time 1 is the end of the first period (year, month, etc.) or the beginning of the second period.
9 LS4A:FIND FV OF A DEPOSIT LONG AGO GIVEN ANNUAL COMPOUNDING: A deposit exactly 17 years ago of $2,500 earns 11.6% annual interest compounded annually. There have been no other deposits or withdrawals. How much is in the account right now? % 2500 FV =? OR How much interest does the account earn?
10 RULE OF 72 (TR1) The approximate number of periods in which a sum of money doubles equals 72 divided by the periodic rate of return. So, if for example, you make 12% a year, the approximate doubling period at 12% a year is:
11 SENSITIVITY TO COMPOUNDING FREQUENCY Note: The period is one year in all the cases. The only difference is how often the compounding is done within a year. The more often the compounding is done, the more interest on interest is earned.
12 EFFECTIVE RATE Effective rate is closely related to compounding frequency The effective annual rate is the amount of interest that accrues on one dollar in one year Effective Rate = (1+ APR/m) m 1 APR = Annual Percentage Rate m = The frequency of compounding per year Effective Rate is higher than APR when m>1 You are more likely to be quoted APR for debt such as loans or credit You are more likely to be quoted Effective rate for deposits or investments
13 EXERCISE 4.3A, #2 In Calculator: FV = $15,000 N = 20 (= 10*2) I/Y = (=6.25/2) Find: PV =? Or by Hand: FV = PV*(1+r) N 15,000 = PV*( /2) 20 15,000 = PV* PV = $8,106
14 REAL AND NOMINAL (QUOTED) RATE LS24. For example, if the Bureau of Census reports that wages went up last year 6% and inflation was 4%, then they will say that represents approximately a 2% growth in real earnings. If you make 6% more but prices are up 4%, your purchasing power or wealth is up 2%. Again, this is an approximation.
15 DOUBLING (TR2) Holding everything else constant When the interest rate doubles then the total interest more than doubles. When the term doubles then the total interest more than doubles. When the beginning wealth doubles then the total interest exactly doubles.
16 WHICH IS BETTER? TR3, TR4, TR5 These investments return a total of $1000 over the same duration and there is a positive interest rate. Biggest Present Value A: An investment generating most of the cash flows at the beginning of its life. Smallest Present Value B: An investment generating most of the cash flows at the end of its life. Year Project A Project B Total 1,000 1,000
17 TIME VALUE RELATION FOR MIXED CASH FLOWS
19 INTEREST FACTORS (TR15) FOR ANNUITY Ordinary Annuity r% PMT PMT PMT a. the Future value interest factor for an annuity, FVIFA(r,N), equals the total accumulation in an account earning the periodic rate r that results from a series of N one-dollar deposits b. the Present value interest factor for an annuity, PVIFA(r,N), equals the initial deposit into an account earning the periodic rate r that perfectly finances a series of N one dollar withdrawals N is the number of cash flows (not the number of periods).
20 PERPETUITY (FOR EVER)
21 PERPETUITY EXAMPLE So an account with a starting balance of $1,590,909 will forever earn yearly interest of $140,000 which will be enough to pay the professor s salary.
22 APPLICATION OF TIME VALUE OF MONEY Capital Budgeting Decisions Should we build this plant?
23 CAPITAL BUDGETING TECHNIQUE: PAYBACK PERIOD The payback period is the length of time required to recover an investment s cost. The shorter the payback period, the better. The longer the payback period, the worse it is. Advantage: It s easy to compute! Disadvantages: No definite Accept or Reject Decision. it ignores all the cash flows past the end of the payback period. this ignores Time Value For you: You spend 300,000 in college and after graduation you make 50,000 per year. What is your payback period for college investment?
24 CF 0 = 21, months will cover = 12*1,200 = 14,400 After 13 th, 14 th, 15 th and 16 th month, it will cover = 14, ,400*4 = 20,000. Almost there. 17 th Month will bring in 1400 more but we only need 1000 more for 21,000 total. Time to make 1,000 = 1000/1400 = 0.71 months So, PBP = = Months
25 CAPITAL BUDGETING TECHNIQUE: NET PRESENT VALUE The NPV for a project is the amount of capitalized economic profit that a project creates. NPV Decision Rule: Accept the project if NPV>0 because it creates more than it costs Reject the project if NPV<0 because it consumes more than it returns
26 QUIZ 15 QUESTION: CB20
27 WHAT IS THE PROJECT S NPV? ACCEPT OR REJECT? Year CF t = = CC 1 (1+r) 1+ CC 2 (1+r) 2 CC 3 (1+r) 3 -CC (1+.10) 1+ (1+10) 2 = $18.79 (1+10) CF0-100 ENTER CF1 10 ENTER CF2 = 60 ENTER CF3 = 80 ENTER NPV I = 10 ENTER CPT
28 CAPITAL BUDGETING TECHNIQUE: INTERNAL RATE OF RETURN The IRR for a project is the financing rate at which the project s NPV is zero. (Cost = Benefit)
29 FIND IRR: TQ9 In the Calculator: CF0=-2,000, CF1=610, F1=1, CF2=1640, F2=1, CF3= , F3=1; Scroll back through to make sure you did everything right. Then hit IRR then CPT to find IRR=34.3% And so now you compare this IRR to whatever the market s financing rate. If IRR is bigger than the financing rate, then Great! If IRR is less than the financing rate, then you want to pass on the project.
30 DRAWING TIME LINES: $100 LUMP SUM DUE IN 2 YEARS; 3-YEAR $100 ORDINARY ANNUITY $100 lump sum due in 2 years r% 3 year $100 ordinary annuity r%
32 WHAT IS THE FUTURE VALUE (FV) OF AN INITIAL $100 AFTER 3 YEARS, IF I/Y = 10%? Finding the FV of a cash flow or series of cash flows when compound interest is applied is called compounding. FV can be solved by using the arithmetic, financial calculator, and spreadsheet methods % 100 FV =?
33 SOLVING FOR FV: THE ARITHMETIC METHOD After 1 year: FV 1 = PV ( 1 + r ) = $100 (1.10) = $ After 2 years: FV 2 = PV ( 1 + r ) 2 = $100 (1.10) 2 =$ After 3 years: FV 3 = PV ( 1 + r ) 3 = $100 (1.10) 3 =$ After n years (general case): FV n = PV ( 1 + r ) n
34 SOLVING FOR FV: THE CALCULATOR METHOD Solves the general FV equation. Requires 4 inputs into calculator, and will solve for the fifth. (Set to P/Y = 1 and END mode.) INPUTS N I/Y PV PMT FV OUTPUT
35 WHAT IS THE PRESENT VALUE (PV) OF $100 DUE IN 3 YEARS, IF I/Y = 10%? Finding the PV of a cash flow or series of cash flows when compound interest is applied is called discounting (the reverse of compounding). The PV shows the value of cash flows in terms of today s purchasing power % PV =? 100
36 SOLVING FOR PV: THE ARITHMETIC METHOD Solve the general FV equation for PV: PV = FV n / ( 1 + r ) n PV = FV 3 / ( 1 + r ) 3 = $100 / ( 1.10 ) 3 = $75.13
37 SOLVING FOR PV: THE CALCULATOR METHOD Solves the general FV equation for PV. Exactly like solving for FV, except we have different input information and are solving for a different variable. INPUTS OUTPUT N I/Y PV PMT FV
38 SOLVING FOR N: IF SALES GROW AT 20% PER YEAR, HOW LONG BEFORE SALES DOUBLE? Solves the general FV equation for N. Same as previous problems, but now solving for N. INPUTS OUTPUT N I/Y PV PMT FV
39 WHAT IS THE DIFFERENCE BETWEEN AN ORDINARY ANNUITY AND AN ANNUITY DUE? Ordinary Annuity r% Annuity Due PMT PMT PMT r% PMT PMT PMT
40 SOLVING FOR FV: 3-YEAR ORDINARY ANNUITY OF $100 AT 10% $100 payments occur at the end of each period, but there is no PV. INPUTS OUTPUT N I/Y PV PMT FV 331
41 SOLVING FOR PV: 3-YEAR ORDINARY ANNUITY OF $100 AT 10% $100 payments still occur at the end of each period, but now there is no FV. INPUTS OUTPUT N I/Y PV PMT FV
42 SOLVING FOR FV: 3-YEAR ANNUITY DUE OF $100 AT 10% Now, $100 payments occur at the beginning of each period. Set calculator to BGN mode. INPUTS OUTPUT N I/Y PV PMT FV
43 SOLVING FOR PV: 3 YEAR ANNUITY DUE OF $100 AT 10% Again, $100 payments occur at the beginning of each period. Set calculator to BGN mode. INPUTS OUTPUT N I/Y PV PMT FV
44 A company pays $7,000 for a new machine, plans a 20% annual return on the investment, and expects these annual cash flows over the next six years:
45 UNEVEN CASH FLOW
46 EDITING CASH FLOW DATA
47 COMPUTING NPV Use an interest rate per period (I) of 20%.
48 NPV PROFILES AND CROSSOVER RATES To create an NPV profile, plot NPV on the Y axis and the discount rate on the X axis. Since the discount rate should be sensitive to changes in project risk, the NPV profile will show how sensitive the projected NPV is to the appropriate discount rate.
49 NPV PROFILES: EXAMPLE NPV of S and L 1,200 1, Crossover Rate 8.1% % 5% 10% 15% 20% 25% -400 Discount Rates Project S Project L
50 FINDING THE CROSSOVER RATE (CB2A - 35) Use the NPV profiles The crossover rate is the rate at which both projects have the same NPV. Take the difference in the projects' cash flows each period and calculate the IRR. Period Project A Project B Difference IRR The crossover rate is 11.8%. At this rate, NPV A = NPV B = $50.71 Project A is better if discounting rate < 11.8% Project B is better if discounting rate > 11.8%
51 PENSION PLANS
52 TWO PRIMARY TYPES OF PENSION PLANS
53 SUMMARY OF 401(K) DEFINED CONTRIBUTION PLANS s/trs%20member%20handbook.pdf
54 PENSION PLAN ATTRIBUTES (BS24) Which statement most accurately describes pension plans in the USA? a. The 401k plan is a defined benefit plan that is the most common pension plan in the USA today b. In a 401k plan employer contributions increase the employee's current taxable income c. Companies used to offer employees defined benefit plans but, as time goes on, defined contribution plans are becoming more common d. Two choices, A and C, are correct e. The three A-B-C choices are all correct ANSWER: C
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
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
1 3. Time value of money We will review some tools for discounting cash flows. Simple interest 2 With simple interest, the amount earned each period is always the same: i = rp o where i = interest earned
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
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
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
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
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
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
1. Future Value of Multiple Cash Flows 2. Future Value of an Annuity 3. Present Value of an Annuity 4. Perpetuities 5. Other Compounding Periods 6. Effective Annual Rates (EAR) 7. Amortized Loans Chapter
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
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
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
Chapter 02 How to Calculate Present Values Multiple Choice Questions 1. The present value of $100 expected in two years from today at a discount rate of 6% is: A. $116.64 B. $108.00 C. $100.00 D. $89.00
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.
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
FI 302, Business Finance Exam 2, Fall 2000 versions 1 & 8 KEYKEYKEYKEYKEYKEYKEYKEYKEYKEYKEYKEYKEY 1. (3 points) BS16 What is a 401k plan Most U.S. households single largest lifetime source of savings is
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,
Time Value of Money Future value Present value Rates of return 1 If you deposit $100 in an account that pays 6% annual interest, what amount will you expect to have in the account at the end of the year.
Chapter 5 Time Value of Money Topics 1. Future Value of a Lump Sum 2. Present Value of a Lump Sum 3. Future Value of Cash Flow Streams 4. Present Value of Cash Flow Streams 5. Perpetuities 6. Uneven Series
Main TVM functions of a BAII Plus Financial Calculator The BAII Plus calculator can be used to perform calculations for problems involving compound interest and different types of annuities. (Note: there
McGraw-Hill/Irwin Copyright 2014 by the McGraw-Hill Companies, Inc. All rights reserved. Key Concepts and Skills Be able to compute: The future value of an investment made today The present value of cash
1. Future Value of a Lump Sum 2. Present Value of a Lump Sum 3. Future Value of Cash Flow Streams 4. Present Value of Cash Flow Streams 5. Perpetuities 6. Uneven Series of Cash Flows 7. Other Compounding
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/
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
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
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
Chapter 28 Time Value of Money Lump sum cash flows 1. For example, how much would I get if I deposit $100 in a bank account for 5 years at an annual interest rate of 10%? Let s try using our calculator:
Chapter 3 Present Value Answers to Concept Review Questions 1. Will a deposit made in an account paying compound interest (assuming compounding occurs once per year) yield a higher future value after one
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)
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
QUANTITATIVE METHODS THE TIME VALUE OF MONEY Reading 5 http://proschool.imsindia.com/ 1 Learning Objective Statements (LOS) a. Interest Rates as Required rate of return, Discount Rate and Opportunity Cost
PRESENT VALUE ANALYSIS Time value of money equal dollar amounts have different values at different points in time. Present value analysis tool to convert CFs at different points in time to comparable values
Time Value of Money Reading 5 IFT Notes for the 2015 Level 1 CFA exam Contents 1. Introduction... 2 2. Interest Rates: Interpretation... 2 3. The Future Value of a Single Cash Flow... 4 4. The Future Value
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.
Chapter 2 Time Value of Money 1 Time Value Topics Future value Present value Rates of return Amortization 2 Time lines show timing of cash flows. 0 1 2 3 I% CF 0 CF 1 CF 2 CF 3 Tick marks at ends of periods,
Reading 5 The Time Value of Money Money has a time value because a unit of money received today is worth more than a unit of money to be received tomorrow. Interest rates can be interpreted in three ways.
Solutions to Problems: Chapter 5 P5-1. Using a time line LG 1; Basic a, b, and c d. Financial managers rely more on present value than future value because they typically make decisions before the start
Chapter 5 & 6 Financial Calculator and Examples Konan Chan Financial Management, Spring 2016 Five Factors in TVM Present value: PV Future value: FV Discount rate: r Payment: PMT Number of periods: N Get
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
Section 4: Using a Financial Calculator Tab 1: Introduction and Objectives Introduction In this section, the functions of a financial calculator will be reviewed and some sample problems will be demonstrated.
Time Value of Money 2014 Level I Quantitative Methods IFT Notes for the CFA exam Contents 1. Introduction... 2 2. Interest Rates: Interpretation... 2 3. The Future Value of a Single Cash Flow... 4 4. The
The Anderson School at UCLA POL 2000-09 Numbers 101: Cost and Value Over Time Copyright 2000 by Richard P. Rumelt. We use the tool called discounting to compare money amounts received or paid at different
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
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
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
Solutions Manual Corporate Finance Ross, Westerfield, and Jaffe 9 th edition 1 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concept Questions 1. In the corporate form of ownership, the shareholders
CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY 1. The simple interest per year is: $5,000.08 = $400 So after 10 years you will have: $400 10 = $4,000 in interest. The total balance will be
CHAPTER 6 DISCOUNTED CASH FLOW VALUATION Answers to Concepts Review and Critical Thinking Questions 1. The four pieces are the present value (PV), the periodic cash flow (C), the discount rate (r), and
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
Review for Exam 1 Instructions: Please read carefully The exam will have 20 multiple choice questions and 4 work problems. Questions in the multiple choice section will be either concept or calculation
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,
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
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
CAPITAL BUDGETING Net Present Value and Other Investment Criteria Net Present Value (NPV) Net present value is the difference between an investment s market value (in today s dollars) and its cost (also
CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY Answers to Concepts Review and Critical Thinking Questions 1. The four parts are the present value (PV), the future value (FV), the discount
Course FM / Exam 2 Introduction It wasn t very long ago that the square root key was the most advanced function of the only calculator approved by the SOA/CAS for use during an actuarial exam. Now students
An annuity is a series of payments or withdrawals. ANNUITIES An Annuity can be either Simple or General Simple Annuities - Compounding periods and payment periods coincide. General Annuities - Compounding
Page 1 of 23 Module 5: Interest concepts of future and present value Overview In this module, you learn about the fundamental concepts of interest and present and future values, as well as ordinary annuities
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
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
REVIEW MATERIALS FOR REAL ESTATE ANALYSIS 1997, Roy T. Black REAE 5311, Fall 2005 University of Texas at Arlington J. Andrew Hansz, Ph.D., CFA CONTENTS ITEM ANNUAL COMPOUND INTEREST TABLES AT 10% MATERIALS
2 Time-Value-of-Money and Amortization Worksheets The Time-Value-of-Money and Amortization worksheets are useful in applications where the cash flows are equal, evenly spaced, and either all inflows or
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
10. Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans Introduction This chapter continues the discussion on the time value of money. In this chapter, you will learn how inflation
Reading 5 The Time Value of Money Money has a time value because a unit of money received today is worth more than a unit of money to be received tomorrow. Interest rates can be interpreted in three ways.
Texas Instruments (TI) BA II PLUS Professional The TI BA II PLUS Professional functions similarly to the TI BA II PLUS model. Any exceptions are noted here. The TI BA II PLUS Professional can perform two
The time value of money: Part II A reading prepared by Pamela Peterson Drake O U T L I E 1. Introduction 2. Annuities 3. Determining the unknown interest rate 4. Determining the number of compounding periods
Time Value Conepts & Applications Prof. Raad Jassim Chapter Outline Introduction to Valuation: The Time Value of Money 1 2 3 4 5 6 7 8 Future Value and Compounding Present Value and Discounting More on
Key Concepts and Skills Chapter 4 Introduction to Valuation: The Time Value of Money Be able to compute the future value of an investment made today Be able to compute the present value of cash to be received
e C P M 1 5 : P o r t f o l i o M a n a g e m e n t f o r P r i m a v e r a P 6 W e b A c c e s s Capital Budgeting C o l l a b o r a t i v e P r o j e c t M a n a g e m e n t e C P M 1 5 C a p i t a l
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.
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
FINANCIAL COMPUTATIONS George A. Jahn Chairman, Dept. of Mathematics Palm Beach Community College Palm Beach Gardens Location http://www.pbcc.edu/faculty/jahng/ The TI-83 Plus and TI-84 Plus have a wonderful
Chapters 5 and 6 Calculators Time Value of Money and Discounted Cash Flow Valuation McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Key Concepts and Skills Be able
MAT116 Project 2 Chapters 8 & 9 1 8-1: The Project In Project 1 we made a loan workout decision based only on data from three banks that had merged into one. We did not consider issues like: What was the
To begin, look at the face of the calculator. Almost every key on the BAII PLUS has two functions: each key's primary function is noted on the key itself, while each key's secondary function is noted in
1.-1.3 ime Value of Money and Discounted ash Flows ime Value of Money (VM) - the Intuition A cash flow today is worth more than a cash flow in the future since: Individuals prefer present consumption to
USING THE SHARP EL 738 FINANCIAL CALCULATOR Basic financial examples with financial calculator steps Prepared by Colin C Smith 2010 Some important things to consider 1. These notes cover basic financial
1 Why Use Net Present Value? The Payback Period Method The Discounted Payback Period Method The Average Accounting Return Method The Internal Rate of Return Problems with the IRR Approach The Profitability
Net Present Value and Capital Budgeting (Text reference: Chapter 7) Topics what to discount the CCA system total project cash flow vs. tax shield approach detailed CCA calculations and examples project
Spring 2012 Finance 3130 Sample Exam 1A Questions for Review 1. The form of organization for a business is an important issue, as this decision has very significant effect on the income and wealth of the
126 Compounding Quarterly, Monthly, and Daily So far, you have been compounding interest annually, which means the interest is added once per year. However, you will want to add the interest quarterly,
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
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,
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
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