SI_Session_November_9

SI_Session_November_9 - Present Value& Bonds MGMT 200 SI...

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Unformatted text preview: Present Value & Bonds MGMT 200 SI November 9, 2009 Price of Milk 1950 - 1970 One Dollar in 1970 is worth less than in 1950. You need more to buy one gallon of milk. Time Value of Money 1950 1955 1960 1965 1970 $0.824 $0.924 $1.04 $1.052 $1.318 Present Values of future $ 1950 1955 1960 1965 1970 $1 What was a 1970 Dollar worth in 1950? i = Average Inflation Rate 1950 – 1969: 2% n = Number of Periods: 20 years Variables: $1 1970 = $0.6730 1950 (PV, n=20, i=2%) $0.6730 from PV Table = 0.6730 Present Value of an Annuity What is an Annuity? An annuity is a series of constant payments i.e. annual interest payments to your bank an $300 interest payment in 2006 is not the same as an $300 interest payment in 2007. In 2005 Dollars, $300 $300 an $300 interest payment in 2006 is not the same as an $300 interest payment in 2007. In 2005 Dollars, $300 $300 (PV, n=1, i=7%) from PV Table = 0.9346 (PV, n=2, i=7%) from PV Table = 0.8734 2005 Dollars: $280.38 $262.02 x 0.9346 x 0.8734 (assume 7% rate) 1.8080 + = $542.4 = $542.4 $300 x Present Value of an Annuity (PV, n=1, i=7%)...
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SI_Session_November_9 - Present Value& Bonds MGMT 200 SI...

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