m4l7 - David Robinson D. Robinson, 2008 Fall 2008 Module 4...

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Unformatted text preview: David Robinson D. Robinson, 2008 Fall 2008 Module 4 Accounting & Finance Lecture 7: The Time Value of Money Introduction to Bond Valuation Accounting & Finance Accounting Finance Managerial Financial Auditing How investors use their money How firms raise money Three financial statements Forms of business Income St. Balance Sheet St. Cash Flows Lecture Outline Inflation Long-run rather low . . . But is it really low now ? Time value of money Bonds as investments The Great Inflation Price of a Value Meal Current Price is $3.49 You will retire 40 years from now If Inflation is 2 percent your Mc Donalds meal will cost $7.71 Price of a Value Meal Current Price is $3.49 You will retire 40 years from now If Inflation is 3.5 percent your Mc Donalds meal will cost $13.82 Price of a Value Meal Current Price is $3.49 You will retire 40 years from now If Inflation is 8.0 percent your Mc Donalds meal will cost $______ High Inflation Causes Social Problems When inflation is very high, it is almost impossible to save for the future: retirement childrens college education High inflation severely impacts people on fixed incomes and leads to social unrest Inflation peaked in 1974 and 1981 Would you settle for a 4 percent pay raise? What made the inflation hump? 78 1. Baby boomers boomthey all wanted houses and had higher earning power 2. Oil shocks 3. Central bankers mis-managed the money supply Is current inflation low? Inflation is low (if you dont eat food or use transportation of any kind) All items: 5.0 percent Ex-food & energy: 2.5 Eek! (Interim) Conclusion about inflation Price Stability (low inflation) one of the functions of the Federal Reserve (the other is to promote economic growth) Keeping inflation low is essential for...
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m4l7 - David Robinson D. Robinson, 2008 Fall 2008 Module 4...

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