FIN323 Midterm 2 Notes

# FIN323 Midterm 2 Notes - FINANCE 323 Midterm 2 Notes FV=...

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FINANCE 323 Midterm 2 Notes FV= PV(1 + i)^n FV=1,500(1+.04)^8 FV=2052.85 Fix mistake on page 27 of reader N=30 I=10% PMT=? PV=0 FV=1,000,000 PMT= 6,079 Example: You make a deposit of 2,000 dollars today earning 7%. A year later you make a deposit of 2,500 dollars in the same account. And a year later you deposit 3,000 dollars. How much would you have at the end of three years? FV= 2000(1+.07)^3 + 2,500(1+.07)^2 + 3,000(1+.07)^1 FV= 2450.08 +2862.25 +3,210 FV=8522 This is the future value of a mixed stream equation Example Receiving 2000, then 2500, then 3000. 2000=PV(1+.07)^0 PV=2000 2500=PV(1+.07)^1 PV=2336 3000=PV(1+.07)^2 PV=2620 Total PV=6956 This is the present value of the mixed stream

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To double your money you need to know Rule of 72 And Interest Rate: 8% 72/8= 9 years Example: You have 1600 dollars with you, how many years will it take to get 6400 at 8% 72/8= 9 years to double to 3200 then 9 more years to double again to 6400 Example: An insurance agent approaches you and promises that his company will pay you 6,000 dollars each year at the end of the year for twenty years after you retire in 10 years. How much should you pay for it? Insurance company will invest your money for 8% 0 ----------------------10—11—12—13—14—15—16------------30 Present Value of Annuity: N=20 I=8% PMT= 6,000 PV=? FV=0 PV= 58,908 SPDA- Single Premium Deferred Annuity
40,000 annuity for 25 years, 15 years to retire Preretirement 10% Post retirement 8% How much must you pay each year to the insurance company? N=25 I=8% PMT= 40,000 PV=? PV=426,991 N=15 I=10% PMT=? PV=0 FV= 426,991 PMT= 13,439 A firm, which has to purchase a machine, the machine manufacturer has made two offers. First one, pay 100,000 dollars now or pay 30,000 now and pay the same amount every year for the next three years. The firm can borrow at 9% per year, which offer should it accept. PV=?

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FIN323 Midterm 2 Notes - FINANCE 323 Midterm 2 Notes FV=...

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