6273.ch04.p086-131.Fv1

6273.ch04.p086-131.Fv1 - FINAL UNPROOFED Final Check...

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NPV and the Time Value of Money Construct a cash flow timeline as the first step in solving problems Calculate the value of distant cash flows in the present and of current cash flows in the future Value a series of many cash flows Understand how to compute the net present value of any set of cash flows 4 LEARNING OBJECTIVES notation Apply shortcuts to value special sets of regular cash flows called perpetuities and annuities Compute the number of periods, cash flow, or rate of return in a loan or investment C cash flow cash flow at date n FV future value future value on date g growth rate IRR internal rate of return N date of the last cash flow in a stream of cash flows NPV net present value P initial principal or deposit, or equivalent present value PV present value present value on date r interest rate PV n FV n C n 86
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INTERVIEW WITH Jonathan Jagolinzer, Ameriprise Financial Services Jonathan Jagolinzer is a financial advisor for Ameriprise Financial Services (formerly American Express Financial), a Fortune 500 financial planning, asset management, and insurance company. A 2005 graduate of George Washington University in Washington, DC, Jon majored in economics and minored in finance. Jon, who works in Ameriprise’s Vienna, Virginia, office, views himself as personal financial trainer for his clients. “Much like a personal trainer, I help them set goals, provide guidance to reach their objectives, and track progress over time,” he says. “Working together, we develop sound financial planning strategies for investments, funding children’s education, retirement, and estate planning.” Jon’s specialty is retirement planning, and he has earned his Chartered Retirement Planning Counselor (CRPC) credential. “My knowledge of time value of money concepts allows me to advise my clients, many of whom are young and just beginning to accumulate personal assets. Some want to spend extravagantly, to buy a new television now, and say they will make up the difference later.” He uses a simple example to illustrate how their dollars can grow over time. “Take just $25 each month—money you’d otherwise spend on movies, new clothes, or fancy coffee drinks—and put that into an account earning 6% interest a year. At the end of 15 years, your $4500 investment will have grown to $7270! That $25 may not seem like much today, but the long-term benefits are quite significant.” Jon also encourages his clients to invest in tax-deferred retirement funds. “If you contribute $100 a month to a tax-deferred retirement account that earns 10% a year, at the end of 20 years you will have over $75,000. If it went into a taxable account and you are in the 28% bracket, it would grow to less than $54,000 over the same period. Time value and other financial concepts are, therefore, tools you can use not just on the job but also to make smarter personal financial decisions today that will bring substantial benefits in the future.” George Washington University, 2005 “Time value and other financial concepts are,
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6273.ch04.p086-131.Fv1 - FINAL UNPROOFED Final Check...

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