FIN 300 Lecture Slides Ch. 4

FIN 300 Lecture Slides Ch. 4 - Click to edit Master...

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Unformatted text preview: Click to edit Master subtitle style 2/1/11 Timeline 2/1/11 Example 4.1 Constructing a 2/1/11 Example 4.1 Constructing a Date 01234 l--------l------l-------l--------l Cash Flows-$5,000-$5,000-$5,000-$5,000 $0 2/1/11 Equation 4.1 Future Value of a Cash Flow FVn = C * (1+r) * (1+r) * . . . . * (1+r) ---------------------------------------- N times = C * (1+r)n 2/1/11 Equation 4.2 Present Value of PV = C / (1+r)n = C (1+r)n 2/1/11 Example 4.2 Present Value of 2/1/11 Example 4.2 Present Value of 0 1 2 . . . 9 10 l-------l-------l------l--------l $15,000 PV = 15,000 = $8,375.92 today (1.06)10 2/1/11 4.2 The Three Rules of Time Comparing and Combining Values Moving Cash Flows Forward in Time Moving Cash Flows Back in Time 2/1/11 Table 4.1 The Three Rules of 2/1/11 Example 4.3 Computing the Want plan to save $1,000 today and at the end of each of the next two years. At a fixed 10% interest rate, how much will we have in the bank three years from today? 2/1/11 Example 4.3 Computing the Time line 0 1 2 3 l-------l-------l------l $1,000 $1,000 $1,000 Year 0& Year 1& Year 2& 2/1/11...
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FIN 300 Lecture Slides Ch. 4 - Click to edit Master...

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