ch06 - CHAPTER6 TimeValueofMoney Futurevalue Presentvalue...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
    6-1 CHAPTER 6 Time Value of Money Future value Present value Annuities Rates of return Amortization
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    6-2 Time lines Show the timing of cash flows. Tick marks occur at the end of periods, so  Time 0 is today; Time 1 is the end of the  first period (year, month, etc.) or the  beginning of the second period. CF 0 CF 1 CF 3 CF 2 0 1 2 3 i%
Background image of page 2
    6-3 Drawing time lines: $100 lump sum due in 2 years; 3-year $100 ordinary annuity 100 100 100 0 1 2 3 i% 3 year $100 ordinary annuity 100 0 1 2 i% $100 lump sum due in 2 years
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    6-4 Drawing time lines: Uneven cash flow stream;  CF 0  = -$50,  CF 1  = $100, CF 2  = $75, and CF 3  = $50  100 50 75 0 1 2 3 i% -50 Uneven cash flow stream
Background image of page 4
    6-5 What is the future value (FV) of an initial  $100 after 3 years, if I/YR = 10%? Finding the FV of a cash flow or series of  cash flows when compound interest is  applied is called compounding. FV can be solved by using the arithmetic,  financial calculator, and spreadsheet  methods. FV = ? 0 1 2 3 10% 100
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    6-6 Solving for FV: The arithmetic method After 1 year: FV 1  = PV ( 1 + i ) = $100 (1.10)       = $110.00 After 2 years: FV 2  = PV ( 1 + i ) = $100 (1.10) 2       =$121.00 After 3 years: FV 3  = PV ( 1 + i ) = $100 (1.10) 3       =$133.10 After n years (general case): FV n  = PV ( 1 + i ) n
Background image of page 6
    6-7 Solving for FV: The calculator method Solves the general FV equation. Requires 4 inputs into calculator, and will  solve for the fifth. (Set to P/YR = 1 and  END mode.) INPUTS OUTPUT N I/YR PMT PV FV 3 10 0 133.10 -100
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    6-8 PV = ? 100 What is the present value (PV) of $100  due in 3 years, if I/YR = 10%? Finding the PV of a cash flow or series of  cash flows when compound interest is  applied is called discounting (the reverse of  compounding). The PV shows the value of cash flows in  terms of today’s purchasing power. 0 1 2 3 10%
Background image of page 8
    6-9 Solving for PV: The arithmetic method Solve the general FV equation for PV: PV = FV n  / ( 1 + i ) n PV = FV 3  / ( 1 + i ) 3      = $100 / ( 1.10 ) 3      = $75.13
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    6-10 Solving for PV: The calculator method Solves the general FV equation for PV. Exactly like solving for FV, except we  have different input information and are  solving for a different variable. INPUTS OUTPUT N I/YR PMT PV FV 3 10 0 100 -75.13
Background image of page 10
    6-11 Solving for N: If sales grow at 20% per year, how long  before sales double? Solves the general FV equation for N.
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/23/2010 for the course FINANCE 10342 taught by Professor Jankiraman during the Spring '10 term at University of Delhi.

Page1 / 44

ch06 - CHAPTER6 TimeValueofMoney Futurevalue Presentvalue...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online