02_Time_Value_of_Money-Day_6_-_2011.02.15v3

02_Time_Value_of_Money-Day_6_-_2011.02.15v3 - Time Value of...

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Time Value of Money Day 6: Future Value of Thomas Hogan FNAN 301 February 15, 2011
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Agenda Quiz 1 procedures FV of multiple cash flows FV of regular annuities FV of annuities due
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Assigned seating. No formula sheets or scratch paper. Envelopes passed out with exams, formula sheets. Do not open until told to do so. At start, sign pledge and write version on Scantron. 50 minutes to complete the exam. Absolutely no writing after time expires!!! If you finish early, you may leave. When there's less than 5 minutes left, please stay in your seat.
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Quiz 1 Will cover the following topics: Corporate financial management PV of annuities There are only 3 formulas: Simple interest: FV = PV × (1 + r × t) Compound interest: FV = PV × (1 + r) t Perpetuities: P 0 = C 1 / r
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FV of Multiple Cash Flows To find the total FV of multiple unique cash flows, we find the FV of each CF. Then add them all together to find the total. F V t (C 0 )= C 0 × (1+r) t-0 FV t (C 1 )= C 1 × (1+r) t-1 ... FV t (C t-1 )= C t-1 × (1+r) t-1 FV t = FV t (C 1 ) + FV t (C 2 ) + . .. + FV t (C t-1 ) + C t This can be re-written as a single formula: FV t = C 0 ×(1+r) t-0 + C 1 ×(1+r) t-1 + . .. + C t-1 ×(1+r) t-1 + C t
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Ex. 1: FV of Multiple CFs Jane invested $500 in a savings account paying 8%. She plans to invest another $800 in 1 year and $900 in 2 years. If she makes payments as expected, how much will she have in 3 years? Draw a timeline. Find the FV of each CF: FV 3 (C 0 ) = C k ×(1+r) t-k = 500×(1+0.08) 3-0 = 629.86 FV 3 (C 1 ) = C k ×(1+r) t-k = 800×(1+0.08) 3-1 = 933.12 FV 3 (C 3 ) = C k ×(1+r) t-k = 900×(1+0.08) 3-2 = 972.00 Add the FVs together: FV total = FV 3 (C 0 ) + FV 3 (C 1 ) + FV 3 (C 2 ) = $2,534.98
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Timeline for FV of an Annuity
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Solving in the Calculator We can Solve for the PV or FV of an annuity just as we did for a single CF, but now we use PMT. PV = 0
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02_Time_Value_of_Money-Day_6_-_2011.02.15v3 - Time Value of...

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