Lecture 5

Lecture 5 - FIN 311 Instructor Syed Walid Reza Lecture 5...

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FIN 311 Instructor: Syed Walid Reza Lecture 5 Spring 2016
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Today Announcements: Quiz 1: 02/15 (Chapters 2, 3, and 5) Quiz 2: 02/26 (Chapters 5, 6, and 7) Exam 1: 02/29 (Chapters 1-7) Chapter 5: Time Value of Money Chapter 6: Discounted Cash Flow Valuation 2
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Chapter 5 You are looking at an investment that will pay $1,200 in 5 years if you invest $1,000 today. What is the implied rate of interest? 3
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Discount Rate Most of the times, is given What if we wanted to find out ? Finding out the discount rate How? 4
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More examples Suppose you are offered an investment that will allow you to double your money in 6 years. You have $10,000 to invest. What is the implied rate of interest? Suppose you have a 1-year old son and you want to provide $75,000 in 17 years towards his college education. You currently have $5,000 to invest. What interest rate must you earn to have the $75,000 when you need it? 5
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More examples You want to purchase a new car, and you are willing to pay $20,000. If you can invest at 10% per year and you currently have $15,000, how long will it be before you have enough money to pay cash for the car?
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