7&8-TVM2

7&8-TVM2 - CorporateFinance BUAD215...

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Click to edit Master subtitle style Corporate Finance BUAD 215 USC Dr. Bemis
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Key Concepts n Be able to compute the future value of  multiple cash flows n Be able to compute the present value of  multiple cash flows n Be able to compute loan payments n Be able to find the interest rate on a loan
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Chapter Outline n Future and Present Values of Multiple  Cash Flows n Valuing Level Cash Flows: Annuities  and Perpetuities n Comparing Rates: The Effect of  Compounding
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Multiple Cash Flow Example n Suppose you invest $500 in a mutual  fund today and $600 in one year.  If the  fund pays 9% annually, how much will  you have in two years? n FV = 500(1.09)2 + 600(1.09) = 1,248.05
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Multiple Cash Flows – FV  Example n Suppose you plan to deposit $100 into  an account in one year and $300 into  the account in three years.  How much  will be in the account in five years if the  interest rate is 8%? n FV = 100(1.08)4 + 300(1.08)2 = 136.05 +  349.92 = 485.97
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Present Value with Multiple  Cash Flow Example n Suppose you need $ 1,000 in one year  and  $ 2,000 more in two years.  If you  can earn 9 percent on your money, how  much do you have to put up today to  exactly cover these amounts in the  future?  In other words, what is the  present value of the two cash flows     a
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Present Value with Multiple  Cash Flows Answer n The present value of $ 2,000 in two years     
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7&8-TVM2 - CorporateFinance BUAD215...

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