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Lecture 4- Time Value of Money Part 2

# Lecture 4- Time Value of Money Part 2 - Present Value of a...

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Present Value of a Growing Annuity An investment promises to make a series of 30 equally spaced payments. The first payment will be \$100 in one year. The payments will then grow at a constant rate of 3% per year. How much would you be willing to pay for this investment if you require a return of 7%?

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Present Value of a Growing Perpetuity An investment will pay annual cash flows forever. The first payment will be \$100 one year from now. The payments will then grow at 5% per year. If you require a return of 8%, how much would you be willing to pay for this investment? What if the first payment is made immediately?
Compounding Frequencies You invest \$1,000 today for 1 year at 10% per year compounded annually. What is the future value?

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Compounding Frequencies How much would you have if you had invested the \$1,000 at 10% per year compounded semi-annually?
Effective Annual Rate (EAR) The interest rate was quoted at 10% per year compounded semi-annually. What is the effective annual rate?

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Annual Percentage Rate (APR) Quoted Rate APR = interest rate * # of periods per period per year
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Lecture 4- Time Value of Money Part 2 - Present Value of a...

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