Compound Interest Chapter 8


 Dorothy Gilbert
 1 years ago
 Views:
Transcription
1
2 82 Compound Interest Chapter 8
3 83 Learning Objectives After completing this chapter, you will be able to: > Calculate maturity value, future value, and present value in compound interest applications, by both the algebraic method and the preprogrammed financial calculator method > Calculate the maturity value of compound interest Guaranteed Investment Certificates (GICs) > Calculate the price of "strip" bonds > Calculate the redemption value of a compound interest Canada Savings Bond > Adapt the concepts and equations of compound interest to cases of compound growth > Calculate the payment on any date that is equivalent to one or more payments on other dates > Calculate the economic value of a payment stream
4 84 Compound Interest (Future Value) Compounding  involves the calculation of interest over the life of the loan or investment Compound interest  the interest on the principal plus the interest of prior periods Future value (compound amount)  is the final amount of the loan or Present Value  the value of a loan investment at the end of the last period or investment today
5 85 Interest earned in the first year Interest earned in the second year $100 $110 A m o u n t $1000 $1000 Beginning principal for the second year ($1100) $1100 Beginning principal for the third year ($1210) Compounding period Time (years)
6 86 Table 8.1 Compounding Frequencies and Periods Compounding Number of Compounding frequency compoundings per year period Annual 1 1 year Semiannual 2 6 months Quarterly 4 3 months Monthly 12 1 month Daily day
7 87 Determining values for i and n Number of periods (n) # of years * # of times the interest is compounded per year Rate for each period (i) Annual interest rate / # times interest is compounded per year If you compounded $100 for 3 years at 6% annually, semiannually, or quarterly What are values for n and i? Periods (n) Annually: 3 * 1 = 3 Semiannually: 3 * 2 = 6 Quarterly: 3 * 4 = 12 Rate (i) Annually: 6% / 1 = 6% Semiannually: 6% / 2 = 3% Quarterly: 6% / 4 = 1.5%
8 88 Formula for Future Value FV = PV(1+i) n Calculator Steps: i + 1 = y x n = * PV =
9 89 Steve Smith deposited $1,000 in a savings account for 4 years at an semiannual compounded rate of 8%. What is Steve s interest and compounded amount? PV = $1000 n = 4 x 2 = 8 i =.08/2 =.04 FV= 1000(1 +.04) 8 = $1,000 * = $1, Interest: I = $1, $1,000 = $ / = y x * = Compounded amount = Future Value Investment
10 The Components of the Future Value of $ S=P(1+i) n Interest on Interest 200 Future Value. S 150 S=P(1+rt) Interest on Original Principal Original Principal Time (years)
11 811 Simple Versus Compound Interest Simple Al Jones deposited $1,000 in a savings account for 5 years at an annual simple interest rate of 10%. What is Al s simple interest and maturity value? Compounded Al Jones deposited $1,000 in a savings account for 5 years at an annual compounded rate of 10%. What is Al s interest and compounded amount? I = Prt I = $1,000 *.10 * 5 = $500 MV = P + I MV = $1,000 + $500 = $1,500 FV = PV(1 +i) n n = 5 * 1 = 5 i =.10/5 =.02 FV = 1000(1.02) 5 = $1,000 * = $1, I = FV  PV I = $1, $1,000 = $610.50
12 812 Future Values of $100 at Various Rates of Interest Compounded Annually % Future Value, S or FV % 8% 6% Years to Maturity, n
13 813 Nominal Rates of Interest Compared Beginning Nominal rate Compounding End balance of interest period balance $1, % Annual Semiannual Quarterly Daily $1, $1, $1, $1,061.80
14 814 Future Values of $100 at the Same Nominal Rate but Different Compounding Frequencies 2500 Future Value, S or FV % Compounded monthly 12% Compounded annually Time (years)
15 815 Compounding Daily Interest Calculate the future value of $2,000 compounded daily for 7 years at 6% n = 7 * 365 = 2555 i =.06 / 365 = FV = 2000(1+.06/365) 2555 =$2,000 * = $3, Calculator steps:.06 / = y x = * 2000 =
16 816 Using Financial Calculators n i PV FV PMT comp represents the number of compounding periods represents the periodic interest rate, j/m represents the principal or present value represents the maturity value or future value represents the periodic annuity payment (not used until chapter 10) used to tell calculator to compute (CPT)
17 817 Using your financial calculator to solve the previous example: Calculate the future value of $2,000 compounded daily for 7 years at 6% Using your Financial calculator: 7 *365 = n FV = $2,000 * = $3, /365 = comp i PV PMT FV
18 818 Heather invested $6000 at 7% compounded quarterly. After 2 years, the rate changed to 8.2% compounded monthly. What amount will Heather have 3 1/2 years after the initial investment? 0 2 years 3.5 years $6000 i=.07/4 n=8 S1 = P2 i=.082/12 n=1.5*12=18 S 2 S 1 = 6000(1+.07/4) 8 = 6000(1.1489) = S 2 = (1+.082/12) 18 = (1.1304) =
19 Shannon borrowed $6000 at 9% compounded quarterly. On the first and second anniversaries of the loan, she made payments of $2500. What is the balance outstanding immediately following the second payment? 0 1 year 2 years 819 $6000 i=.09/4 n=4 S i=.09/4 n=4 S 1 = 6000(1+.09/4) 4 = 6000(1.0931) = P 2 = S 2 S 2 = (1+.09/4) 4 = (1.0931) = Outstanding balance: $
20 820 Present Value of $1 at 8% for Four Periods $1.20 $1.10 $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Present value goes from the future value to the present value Present value $.7350 $.7938 $.8573 $ $ Future Value Number of periods
21 821 Formula for Present Value PV = FV(1+i)  n Calculator Steps: i + 1= y x n +/ = * FV =
22 822 Calculating Present Value Steve Smith needs $1, in 4 years. His bank offers 8% interest compounded semiannually. How much money must Steve put in the bank today (PV) to reach his goal in 4 years? n = 4 * 2 = 8 i =.08 =.04 PV = (1+.04) 8 = $1, *.7307 = $1, Calculator steps: 1.04 y x 8 +/ = * = Invest Today Investment
23 823 $1,200 Figure 8.5 The Present Value Of $1000 (Discounted at 10% Compounded Annually) $1,000 $800 Present value $600 $400 $200 $0 25 years earlier 20 years earlier 15 years earlier 10 years earlier 5 years earlier Payment date
24 824 Two payments of $4000 each must be made 1 and 4 years from now. If money can earn 8% compounded monthly, what single payment 3 years from now would be equivalent to the two scheduled payments? 0 1 year 2 years 3 years 4 years $4000 $4000 i=.08/12 n=2*12=24 FV 1 = 4000(1+.08/12) 24 = 4000(1.1729) = PV 2 = 4000(1+.08/12) 12 = 4000(0.9234) = i=.08/12 n=1*12=12 Final ans: = $
25 825 What amount must you invest now at 6% compounded daily to accumulate to $5000 after 1 year? Using your Financial calculator: 365 n j= 6% m = 365 S = FV = $5000 i=.06/365 n = 1 * 365 = 365 6/365= comp i FV PMT PV Ans.: $
26 826 What regular payment will an investor receive from a $10 000, 5 year, monthly payment GIC earning a nominal rate of 7% compounded monthly? Interest rate per payment interval is: i= j/m =.07/12 = the monthly payment will be: PV * i= $ * = $58.33
27 827 Guaranteed Investment Certificates (GICs) > purchased from banks, credit unions, trust companies, and caisses populaires (in Quebec). > you are in effect lending money to the financial institution. > the financial institution uses the funds raised from selling GICs to make loans most commonly, mortgage loans. > mortgage rates are typically 1.5% to 2% higher than the interest rate paid to GIC investors. > Guaranteed refers to the unconditional guarantee of principal and interest by the parent financial institution. > maturities in the range of 1 to 5 years. > most GICs are not redeemable before maturity.
28 828 Structure of Interest Rates Fixed rate: The interest rate does not change over the term of the GIC. Stepup rate: The interest rate is increased every 6 months or every year according to a predetermined schedule. Variable rate: The interest rate is adjusted every year or every 6 months to reflect prevailing market rates. There may be a minimum floor below which rates cannot drop
29 829 Payment of interest Compound interest version: Interest is periodically converted to principal and paid at maturity. Regular interest version: Interest is paid to the investor every year or every 6 months.
30 830 Canada Savings Bonds (CSBs( CSBs)? you purchase from financial institutions, but $ goes to the federal government to help finance its debt.? usual term is 10 or 12 years? variable interest rates? interest rates is changed on each anniversary, with minimum rates for subsequent 2 years? may be redeemed at any time? both regular and compound interest versions
31 831 Valuation Principle: > The fair market value of an investment is the sum of the present values of the expected cash flows. > The discount rate used should be the prevailing market determined rate of return required on this type of investment.
32 832 Strip bonds? its owner will receive a single payment (called the face value of the bond) on the bond s maturity date.? The maturity date could be as much as 30 years in the future. No interest will be received in the interim. Suppose a $1000 face value strip bond matures 18 years from now. The owner of this bond will receive a payment of $1000 in 18 years. What is the appropriate price to pay for the bond today if the prevailing rate of return is 8.75% compounded semiannually? FV = $1000 i=.0875/2 n = 18 * 2 = 36 PV = 1000( /2) 36 = 1000(0.2141) = $214.06
33 833 THE END
3. Time value of money. We will review some tools for discounting cash flows.
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
More informationChapter 28 Time Value of Money
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:
More informationFinQuiz Notes 2 0 1 5
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.
More informationTHE TIME VALUE OF MONEY
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
More informationWith compound interest you earn an additional $128.89 ($1628.89  $1500).
Compound Interest Interest is the amount you receive for lending money (making an investment) or the fee you pay for borrowing money. Compound interest is interest that is calculated using both the principle
More informationChapter 5 Time Value of Money 2: Analyzing Annuity Cash Flows
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
More informationLO.a: Interpret interest rates as required rates of return, discount rates, or opportunity costs.
LO.a: Interpret interest rates as required rates of return, discount rates, or opportunity costs. 1. The minimum rate of return that an investor must receive in order to invest in a project is most likely
More informationDiscounted Cash Flow Valuation
6 Formulas Discounted Cash Flow Valuation McGrawHill/Irwin Copyright 2008 by The McGrawHill Companies, Inc. All rights reserved. Chapter Outline Future and Present Values of Multiple Cash Flows Valuing
More informationChapter 5 Time Value of Money
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
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 information5.1 Simple and Compound Interest
5.1 Simple and Compound Interest Question 1: What is simple interest? Question 2: What is compound interest? Question 3: What is an effective interest rate? Question 4: What is continuous compound interest?
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 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 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 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 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 informationFuture Value of an Annuity Sinking Fund. MATH 1003 Calculus and Linear Algebra (Lecture 3)
MATH 1003 Calculus and Linear Algebra (Lecture 3) Future Value of an Annuity Definition An annuity is a sequence of equal periodic payments. We call it an ordinary annuity if the payments are made at the
More informationAPPENDIX. Interest Concepts of Future and Present Value. Concept of Interest TIME VALUE OF MONEY BASIC INTEREST CONCEPTS
CHAPTER 8 Current Monetary Balances 395 APPENDIX Interest Concepts of Future and Present Value TIME VALUE OF MONEY In general business terms, interest is defined as the cost of using money over time. Economists
More informationTime Value of Money. 2014 Level I Quantitative Methods. IFT Notes for the CFA exam
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
More informationTime Value of Money Practice Questions Irfanullah.co
1. You are trying to estimate the required rate of return for a particular investment. Which of the following premiums are you least likely to consider? A. Inflation premium B. Maturity premium C. Nominal
More informationLesson TVM10040xx Present Value Ordinary Annuity Clip 01
      Cover Page       Lesson TVM10040xx Present Value Ordinary Annuity Clip 01 This workbook contains notes and worksheets to accompany the corresponding video lesson available online at:
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 informationTimeValueofMoney and Amortization Worksheets
2 TimeValueofMoney and Amortization Worksheets The TimeValueofMoney and Amortization worksheets are useful in applications where the cash flows are equal, evenly spaced, and either all inflows or
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 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 definedcontribution
More informationExercise 6 Find the annual interest rate if the amount after 6 years is 3 times bigger than the initial investment (3 cases).
Exercise 1 At what rate of simple interest will $500 accumulate to $615 in 2.5 years? In how many years will $500 accumulate to $630 at 7.8% simple interest? (9,2%,3 1 3 years) Exercise 2 It is known that
More informationTIME VALUE OF MONEY PROBLEM #7: MORTGAGE AMORTIZATION
TIME VALUE OF MONEY PROBLEM #7: MORTGAGE AMORTIZATION Professor Peter Harris Mathematics by Sharon Petrushka Introduction This problem will focus on calculating mortgage payments. Knowledge of Time Value
More informationHow to calculate present values
How to calculate present values Back to the future Chapter 3 Discounted Cash Flow Analysis (Time Value of Money) Discounted Cash Flow (DCF) analysis is the foundation of valuation in corporate finance
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 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 informationTopics Covered. Compounding and Discounting Single Sums. Ch. 4  The Time Value of Money. The Time Value of Money
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 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 informationWhat You ll Learn. And Why. Key Words. interest simple interest principal amount compound interest compounding period present value future value
What You ll Learn To solve problems involving compound interest and to research and compare various savings and investment options And Why Knowing how to save and invest the money you earn will help you
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 informationFinQuiz Notes 2 0 1 4
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.
More informationChapter 11. Bond Pricing  1. Bond Valuation: Part I. Several Assumptions: To simplify the analysis, we make the following assumptions.
Bond Pricing  1 Chapter 11 Several Assumptions: To simplify the analysis, we make the following assumptions. 1. The coupon payments are made every six months. 2. The next coupon payment for the bond is
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 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 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 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 31 a) Future Value = FV(n,i,PV,PMT)
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 information3. If an individual investor buys or sells a currently owned stock through a broker, this is a primary market transaction.
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
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 informationPresent Value Concepts
Present Value Concepts Present value concepts are widely used by accountants in the preparation of financial statements. In fact, under International Financial Reporting Standards (IFRS), these concepts
More informationAPPENDIX 3 TIME VALUE OF MONEY. Time Lines and Notation. The Intuitive Basis for Present Value
1 2 TIME VALUE OF MONEY APPENDIX 3 The simplest tools in finance are often the most powerful. Present value is a concept that is intuitively appealing, simple to compute, and has a wide range of applications.
More informationFin 5413 CHAPTER FOUR
Slide 1 Interest Due Slide 2 Fin 5413 CHAPTER FOUR FIXED RATE MORTGAGE LOANS Interest Due is the mirror image of interest earned In previous finance course you learned that interest earned is: Interest
More informationManual for SOA Exam FM/CAS Exam 2.
Manual for SOA Exam FM/CAS Exam 2. Chapter 5. Bonds. c 2009. Miguel A. Arcones. All rights reserved. Extract from: Arcones Manual for the SOA Exam FM/CAS Exam 2, Financial Mathematics. Fall 2009 Edition,
More information2016 Wiley. Study Session 2: Quantitative Methods Basic Concepts
2016 Wiley Study Session 2: Quantitative Methods Basic Concepts Reading 5: The Time Value of Money LESSO 1: ITRODUCTIO, ITEREST RATES, FUTURE VALUE, AD PREST VALUE The Financial Calculator It is very important
More informationChapter 4. Time Value of Money
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 informationCompound Interest. Invest 500 that earns 10% interest each year for 3 years, where each interest payment is reinvested at the same rate:
Compound Interest Invest 500 that earns 10% interest each year for 3 years, where each interest payment is reinvested at the same rate: Table 1 Development of Nominal Payments and the Terminal Value, S.
More information380.760: Corporate Finance. Financial Decision Making
380.760: Corporate Finance Lecture 2: Time Value of Money and Net Present Value Gordon Bodnar, 2009 Professor Gordon Bodnar 2009 Financial Decision Making Finance decision making is about evaluating costs
More informationThe Time Value of Money Part 2B Present Value of Annuities
Management 3 Quantitative Methods The Time Value of Money Part 2B Present Value of Annuities Revised 2/18/15 New Scenario We can trade a single sum of money today, a (PV) in return for a series of periodic
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 information2. Determine the appropriate discount rate based on the risk of the security
Fixed Income Instruments III Intro to the Valuation of Debt Securities LOS 64.a Explain the steps in the bond valuation process 1. Estimate the cash flows coupons and return of principal 2. Determine the
More informationFinance 331 Corporate Financial Management Week 1 Week 3 Note: For formulas, a Texas Instruments BAII Plus calculator was used.
Chapter 1 Finance 331 What is finance?  Finance has to do with decisions about money and/or cash flows. These decisions have to do with money being raised or used. General parts of finance include: 
More informationfirst complete "prior knowlegde"  to refresh knowledge of Simple and Compound Interest.
ORDINARY SIMPLE ANNUITIES first complete "prior knowlegde"  to refresh knowledge of Simple and Compound Interest. LESSON OBJECTIVES: students will learn how to determine the Accumulated Value of Regular
More informationDirect Transfer. Investment Banking. Investment Banking. Basic Concepts. Economics of Money and Banking. Basic Concepts
Basic Concepts Economics of Money and Banking 2014 South Carolina Bankers School Ron Best University of West Georgia rbest@westga.edu Risk and return: investors will only take on additional risk if they
More informationhttp://www.tdcanadatrust.com/gics/guide.jsp
Page 1 of 5 Skip to content Apply Search Contact Us Login to: EasyWeb My Accounts Customer Service Banking Investing Insurance Small Business Products & Services Markets & Research Planning TD Canada Trust
More informationA) 1.8% B) 1.9% C) 2.0% D) 2.1% E) 2.2%
1 Exam FM Questions Practice Exam 1 1. Consider the following yield curve: Year Spot Rate 1 5.5% 2 5.0% 3 5.0% 4 4.5% 5 4.0% Find the four year forward rate. A) 1.8% B) 1.9% C) 2.0% D) 2.1% E) 2.2% 2.
More informationTime Value of Money. 15.511 Corporate Accounting Summer 2004. Professor S. P. Kothari Sloan School of Management Massachusetts Institute of Technology
Time Value of Money 15.511 Corporate Accounting Summer 2004 Professor S. P. Kothari Sloan School of Management Massachusetts Institute of Technology July 2, 2004 1 LIABILITIES: Current Liabilities Obligations
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 informationChapter 3 Understanding Money Management. Nominal and Effective Interest Rates Equivalence Calculations Changing Interest Rates Debt Management
Chapter 3 Understanding Money Management Nominal and Effective Interest Rates Equivalence Calculations Changing Interest Rates Debt Management 1 Understanding Money Management Financial institutions often
More informationSolutions to Supplementary Questions for HP Chapter 5 and Sections 1 and 2 of the Supplementary Material. i = 0.75 1 for six months.
Solutions to Supplementary Questions for HP Chapter 5 and Sections 1 and 2 of the Supplementary Material 1. a) Let P be the recommended retail price of the toy. Then the retailer may purchase the toy at
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 informationTime Value of Money 1
Time Value of Money 1 This topic introduces you to the analysis of tradeoffs over time. Financial decisions involve costs and benefits that are spread over time. Financial decision makers in households
More informationChapter 2 Present Value
Chapter 2 Present Value Road Map Part A Introduction to finance. Financial decisions and financial markets. Present value. Part B Valuation of assets, given discount rates. Part C Determination of riskadjusted
More informationChapter 2 Applying Time Value Concepts
Chapter 2 Applying Time Value Concepts Chapter Overview Albert Einstein, the renowned physicist whose theories of relativity formed the theoretical base for the utilization of atomic energy, called the
More informationNPV calculation. Academic Resource Center
NPV calculation Academic Resource Center 1 NPV calculation PV calculation a. Constant Annuity b. Growth Annuity c. Constant Perpetuity d. Growth Perpetuity NPV calculation a. Cash flow happens at year
More informationModule 5: Interest concepts of future and present value
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
More informationTime Value of Money. Appendix
1 Appendix Time Value of Money After studying Appendix 1, you should be able to: 1 Explain how compound interest works. 2 Use future value and present value tables to apply compound interest to accounting
More information$496. 80. Example If you can earn 6% interest, what lump sum must be deposited now so that its value will be $3500 after 9 months?
Simple Interest, Compound Interest, and Effective Yield Simple Interest The formula that gives the amount of simple interest (also known as addon interest) owed on a Principal P (also known as present
More informationCHAPTER15. LongTerm Liabilities. Acct202 151
CHAPTER15 LongTerm Liabilities Acct202 151 152 PreviewofCHAPTER15 Bond Basics Bonds are a form of interestbearing notes payable. Three advantages over common stock: 1. Stockholder control is not affected.
More informationChapter 5 & 6 Financial Calculator and Examples
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
More informationIntroduction to the HewlettPackard (HP) 10BII Calculator and Review of Mortgage Finance Calculations
Introduction to the HewlettPackard (HP) 10BII Calculator and Review of Mortgage Finance Calculations Real Estate Division Sauder School of Business University of British Columbia Introduction to the HewlettPackard
More informationChapter 4 Time Value of Money
Chapter 4 Time Value of Money Solutions to Problems P41. LG 1: Using a Time Line Basic (a), (b), and (c) Compounding Future Value $25,000 $3,000 $6,000 $6,000 $10,000 $8,000 $7,000 > 0 1 2 3 4 5 6 End
More informationIntegrated Case. 542 First National Bank Time Value of Money Analysis
Integrated Case 542 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 informationYour Name: UVa Id:
University of Virginia  math1140: Financial Mathematics Fall 2011 Exam 1 7:009:00 pm, 26 Sep 2011 Honor Policy. For this exam, you must work alone. No resources may be used during the quiz. The only
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 informationBonds. Describe Bonds. Define Key Words. Created 2007 By Michael Worthington Elizabeth City State University
Bonds OBJECTIVES Describe bonds Define key words Explain why bond prices fluctuate Compute interest payments Calculate the price of bonds Created 2007 By Michael Worthington Elizabeth City State University
More informationUSING THE SHARP EL 738 FINANCIAL CALCULATOR
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
More informationFINANCIAL MATHEMATICS FIXED INCOME
FINANCIAL MATHEMATICS FIXED INCOME 1. Converting from Money Market Basis to Bond Basis and vice versa 2 2. Calculating the Effective Interest Rate (Nonannual Payments)... 4 3. Conversion of Annual into
More informationSOCIETY OF ACTUARIES/CASUALTY ACTUARIAL SOCIETY EXAM FM SAMPLE QUESTIONS
SOCIETY OF ACTUARIES/CASUALTY ACTUARIAL SOCIETY EXAM FM FINANCIAL MATHEMATICS EXAM FM SAMPLE QUESTIONS Copyright 2005 by the Society of Actuaries and the Casualty Actuarial Society Some of the questions
More informationProblems and Solutions
Problems and Solutions CHAPTER Problems. Problems on onds Exercise. On /04/0, consider a fixedcoupon bond whose features are the following: face value: $,000 coupon rate: 8% coupon frequency: semiannual
More informationThe Time Value of Money Guide
The Time Value of Money Guide Institute of Financial Planning CFP Certification Global Excellence in Financial Planning TM Page 1 Contents Page Introduction 4 1. The Principles of Compound Interest 5 2.
More informationCARMEN VENTER COPYRIGHT www.futurefinance.co.za 0828807192 1
Carmen Venter CFP WORKSHOPS FINANCIAL CALCULATIONS presented by Geoff Brittain Q 5.3.1 Calculate the capital required at retirement to meet Makhensa s retirement goals. (5) 5.3.2 Calculate the capital
More information10. Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans
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
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 informationCHAPTER 8 INTEREST RATES AND BOND VALUATION
CHAPTER 8 INTEREST RATES AND BOND VALUATION Solutions to Questions and Problems 1. The price of a pure discount (zero coupon) bond is the present value of the par value. Remember, even though there are
More information, plus the present value of the $1,000 received in 15 years, which is 1, 000(1 + i) 30. Hence the present value of the bond is = 1000 ;
2 Bond Prices A bond is a security which offers semiannual* interest payments, at a rate r, for a fixed period of time, followed by a return of capital Suppose you purchase a $,000 utility bond, freshly
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 informationPrepared by: Dalia A. Marafi Version 2.0
Kuwait University College of Business Administration Department of Finance and Financial Institutions Using )Casio FC200V( for Fundamentals of Financial Management (220) Prepared by: Dalia A. Marafi Version
More informationChapter 5: Valuing Bonds
FIN 302 Class Notes Chapter 5: Valuing Bonds What is a bond? A longterm debt instrument A contract where a borrower agrees to make interest and principal payments on specific dates Corporate Bond Quotations
More informationMGF 1107 Spring 11 Ref: 606977 Review for Exam 2. Write as a percent. 1) 3.1 1) Write as a decimal. 4) 60% 4) 5) 0.085% 5)
MGF 1107 Spring 11 Ref: 606977 Review for Exam 2 Mr. Guillen Exam 2 will be on 03/02/11 and covers the following sections: 8.1, 8.2, 8.3, 8.4, 8.5, 8.6. Write as a percent. 1) 3.1 1) 2) 1 8 2) 3) 7 4 3)
More informationchapter Compound Interest: Future Value and Present Value CHAPTER OUTLINE LEARNING OBJECTIVES
chapter Compound Interest: Future Value and Present Value LEARNING OBJECTIVES After completing this chapter, you will be able to: Calculate maturity value, future value, and present value in compound interest
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 informationChapter 4 Time Value of Money ANSWERS TO ENDOFCHAPTER QUESTIONS
Chapter 4 Time Value of Money ANSWERS TO ENDOFCHAPTER QUESTIONS 41 a. PV (present value) is the value today of a future payment, or stream of payments, discounted at the appropriate rate of interest.
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 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 informationMath Workshop Algebra (Time Value of Money; TVM)
Math Workshop Algebra (Time Value of Money; TVM) FV 1 = PV+INT 1 = PV+PV*I = PV(1+I) = $100(1+10%) = $110.00 FV 2 = FV 1 (1+I) = PV(1+I)(1+I) = PV(1+I) 2 =$100(1.10) 2 = $121.00 FV 3 = FV 2 (1+I) = PV(1
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 information