1.3 Week 1 Lect 2 TVM - Part 1

1.3 Week 1 Lect 2 TVM - Part 1 - TVMPart1 Week1Lecture2...

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    TVM – Part 1 Week 1 Lecture 2
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    Time Value of Money The most important concept in finance Used in nearly every financial decision Business decisions Personal finance decisions
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    First Principle: A dollar today is worth more than a  dollar next year. Why? Investment Opportunities to earn interest
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    Topics Covered Future Values Simple Interest Compound Interest Present Values
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    Cash Flow Time Lines CF 0 CF 1 CF 3 CF 2 0 1 2 3 r% Time 0 is today Time 1 is the end of Period 1 or the beginning  of Period 2. Graphical representations used to  show timing of cash flows
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    ALWAYS ALWAYS ALWAYS DRAW A TIME  LINE!!!!!!!!!!
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    100 0 1 2     Year r% Time line for a $100 lump sum  due at the end of Year 2
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    Time line for an ordinary annuity  of $100 for 3 years 100 100 100 0 1 2 3 r%
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    Time line for uneven CFs   100  50  75 0 1 2 3 r% -50 - $50 at t = 0 and $100, $75, and $50  at the end of Years 1 through 3
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  Terminology Future Value  - Amount to which an investment will  grow after earning interest. Compound Interest
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This note was uploaded on 12/23/2009 for the course BCOM FINC 201 taught by Professor Debrak.reed during the Spring '09 term at Canterbury.

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1.3 Week 1 Lect 2 TVM - Part 1 - TVMPart1 Week1Lecture2...

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