1.7 Week3 Lect2 TVM PT5 Calc Excel

1.7 Week3 Lect2 TVM PT5 Calc Excel - TVMPart5Using...

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TVM – Part 5  Using  Financial Calculators and  Excel Week 3 Lecture 2 
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Three Ways to Solve Time Value  of Money Problems Use Equations Use Financial Calculator Use Electronic Spreadsheet
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Types of Problems Future Value Present Value Uneven Cash Flow Streams Time for Funds to Accumulate Future Value of an Annuity Present Value of an Annuity EAR Amortization
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After 1 year: FV 1 = PV + Interest 1  =  PV + PV (I) = PV(1 + I) = $100 (1.10) = $110.00. After 2 years: FV 2 = PV(1 + I) 2 = $100 (1.10) 2 = $121.00. After 3 years:  FV 3 = PV(1 + I) 3 = 100 (1.10) 3 = $133.10. In general,  FV n  =  PV (1 + I)n Future Value
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Solve this equation by plugging in the  appropriate values: Numerical (Equation) Solution = + n n FV PV(1 I) PV = $100, I = 10%, and n =3 $133.10 0) $100(1.331 $100(1.10) FV 3 n = = =
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There are 4 variables.  If 3 are known,  the calculator will solve for the 4th. Financial Calculator Solution = + n n FV PV(1 I)
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Financial Calculator
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Financial Calculator
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INPUTS OUTPUT   3  10 -100       0 ?  N I/YR    PV     PMT FV       133.10 Here’s the setup to find FV: Clearing automatically sets everything to 0, but for  safety enter PMT = 0. Set: P/YR =  1, END Financial Calculator Solution
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Spreadsheet Solution Set up Problem Click on insert function and  choose Financial/FV
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Spreadsheet Solution Reference cells: Rate = interest  rate, k Nper = number of  periods interest is  earned  Pmt = periodic  payment PV = present value  of the amount 
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Present Value Present value  is the value today of a future cash flow or  series of cash flows. Discounting   is the process of finding the present value  of a future cash flow or series of future cash flows; it is  the reverse of compounding. Example What is the PV of $100 due in three years if r = 10%?
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100 0 1 2 3 10% PV = ? What is the PV of $100 due in  three years if I = 10%?
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n  =  PV (1 + k ) n   for PV: ( 29       n n n n FV 1 PV  =    = FV 1+ I 1+ I ( 29 $75.13   =   0.7513 $100   =          1.10 1 $100   = PV  3 What is the PV of $100 due in three years if I = 10%? This is the numerical solution to solve for PV.
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1.7 Week3 Lect2 TVM PT5 Calc Excel - TVMPart5Using...

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