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MGMT310_lecture6

# MGMT310_lecture6 - Last Lasttimewediscussed...

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st time we discussed… Last time we discussed… Time value of money Present value / Future value  1 T F VP V r  1 T FV PV r or So far, we’ve dealt with a single cash flow. , g Now… what if we have multiple cash flows??

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resent value with multiple cash flows Present value with multiple cash flows You have an investment opportunity from which you expect to receive \$1,000/yr for three years, starting one year from today. The relevant discount rate is 10% annually. What is the resent value of all expected future cash flows from this present value of all expected future cash flows from this investment?
“ leeping Beauty” bonds Sleeping Beauty bonds In July 1993, Walt Disney Co. issued 100 year bonds, dubbed sleeping beauties . Purchasers of this bond (based on a face value of \$1000) were promised semi annual payments, called coupons , of \$37.75 for 100 years. For simplicity, let us assume that bondholders received a single payment per year of \$75.50, beginning one year from urchase. What is the present value of these payments, if the p p py , relevant discount rate is 7.55% annually?

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nnuity Annuity An annuity is a constant stream of cash flows for a fixed period of time Assuming payments begin one year from today (or, equivalently, at end of year):  11 Annuity PV T r C   r  nnuity FV Annuity P T T r r      Annuity FV o V r 1 Cr r    ***Must pay close attention to timing of payments!!!

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V annuity example PV annuity example Let’s say you are retiring, and you want an asset that will pay you \$50,000 for 30 years, starting one year from today.
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MGMT310_lecture6 - Last Lasttimewediscussed...

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