Chapter 02 w Learning Obj

Chapter 02 w Learning Obj - Chapter 2 Time Value of Money...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
    2-1 Chapter 2 - Time Value of Money Learning Objectives After reading this chapter, students should be able to: Convert time value of money (TVM) problems from words to time lines. Explain the relationship between compounding and discounting, between future and present value. Calculate the future value of some beginning amount, and find the present value of a single payment to be  received in the future. Solve for interest rate or time, given the other three variables in the TVM equation. Find the future value of a series of equal, periodic payments (an annuity) and the present value of such an  annuity. Explain the difference between an ordinary annuity and an annuity due, and calculate the difference in their  values—both on a present value and future value basis. Solve for annuity payments, periods, and interest rates, given the other four variables in the TVM equation. Calculate the value of a perpetuity. Demonstrate how to find the present and future values of an uneven series of cash flows and how to solve  for the interest rate of an uneven series of cash flows. Solve TVM problems for non-annual compounding. Distinguish among the following interest rates:  Nominal (or Quoted) rate, Periodic rate, Annual Percentage  Rate (APR), and Effective (or Equivalent) Annual Rate; and properly choose among securities with  different compounding periods. Solve time value of money problems that involve fractional time periods. Construct loan amortization schedules for fully-amortized loans.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
    2-2 CHAPTER 2 Time Value of Money Future value Present value Annuities Rates of return Amortization
Background image of page 2
    2-3 Time lines 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. CF 0 CF 1 CF 3 CF 2 0 1 2 3 I%
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
    2-4 Drawing time lines 100 100 100 0 1 2 3 I% 3 year $100 ordinary annuity 100 0 1 2 I% $100 lump sum due in 2 years
Background image of page 4
    2-5 Drawing time lines 100  50  75 0 1 2 3 I% -50 Uneven cash flow stream
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
    2-6 What is the future value (FV) of an initial  $100 after 3 years, if I/YR = 10%? Finding the FV of a cash flow or series of cash  flows is called compounding. FV can be solved by using the step-by-step,  financial calculator, and spreadsheet methods. FV = ? 0 1 2 3 10% 100
Background image of page 6
    2-7 Solving for FV: The step-by-step and formula methods After 1 year: FV 1  = PV (1 + I) = $100 (1.10)       = $110.00 After 2 years: FV 2  = PV (1 + I) = $100 (1.10) 2       =$121.00 After 3 years: FV 3  = PV (1 + I) = $100 (1.10) 3       =$133.10 After N years (general case): FV N  = PV (1 + I) N
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 44

Chapter 02 w Learning Obj - Chapter 2 Time Value of Money...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online