IFM10 Ch29 Lecture

IFM10 Ch29 Lecture - Chapter29 BasicFinancialTools:AReview...

Info iconThis preview shows pages 1–21. Sign up to view the full content.

View Full Document Right Arrow Icon
  1 Chapter 29 Basic Financial Tools: A Review
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  2 Topics in Chapter Time Value of Money Bond Valuation Risk and Return Stock Valuation
Background image of page 2
  3 Time lines show timing of cash flows. CF 0 CF 1 CF 3 CF 2 0 1 2 3 i% Tick marks at ends of periods, so Time 0 is today; Time 1 is the end of Period 1; or the beginning of Period 2.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  4 Time line for a $100 lump sum  due at the end of Year 2. 100 0 1 2 Year i%
Background image of page 4
  5 Time line for an ordinary  annuity of $100 for 3 years. 100 100 100 0 1 2 3 i%
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  6 What’s the FV of an initial $100 after 1, 2, and 3 years if i = 10%? FV = ? 0 1 2 3 10% Finding FVs (moving to the right on a time line) is called compounding. 100 FV = ? FV = ?
Background image of page 6
  7 After 1 year: FV 1 = PV + INT 1 = PV + PV (i) = PV(1 + i) = $100(1.10) = $110.00. After 2 years: FV 2 = PV(1 + i) 2 = $100(1.10) 2 = $121.00.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  8 After 3 years: FV 3 = PV(1 + i) 3 = $100(1.10) 3 = $133.10. In general, FV n = PV(1 + i) n .
Background image of page 8
  9 What’s the FV in 3 years of $100  received in Year 2 at 10%? 100 0 1 2 3 10% 110
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  10 What’s the FV of a 3-year  ordinary annuity of $100 at 10%? 100 100 100 0 1 2 3 10% 110 121 FV = 331
Background image of page 10
  11 3 10 0 -100 331.00 N I/YR PV PMT FV Financial Calculator Solution Have payments but no lump sum PV, so enter 0 for present value. INPUTS OUTPUT
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  12 10% What’s the PV of $100 due in  2 years if i = 10%? Finding PVs is discounting, and it’s the reverse of compounding. 100 0 1 2 PV = ?
Background image of page 12
  13 Solve FV n = PV(1 + i ) n for PV: ( 29 ( 29 PV = $100 1 1.10 = $100 PVIF = $100 0.8264 = $82.64. i,n 2 ( 29 PV = FV 1+i = FV 1 1+i n n n n
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  14 What’s the PV of this ordinary  annuity? 100 100 100 0 1 2 3 10% 90.91 82.64 75.13 248.69 = PV
Background image of page 14
  15 Have payments but no lump sum FV, so enter 0 for future value. 3 10 100 0 N I/YR PV PMT FV -248.69 INPUTS OUTPUT
Background image of page 15

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  16 How much do you need to save each  month for 30 years in order to retire on  $145,000 a year for 20 years, i = 10%? 0 360 2 20 1 2 PMT PMT PMT ... 1 19 months before retirement years after retirement -145k -145k -145k -145k ...
Background image of page 16
  17 How much must you have in your  account on the day you retire if  i = 10%? How much do you need on this date? 2 20 ... 1 19 years after retirement -145k -145k -145k -145k ... 0
Background image of page 17

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  18 You need the present value of a 20- year 145k annuity--or $1,234,467. 20 10 -145000 0 N I/YR PV FV PMT 1,234,467 INPUTS OUTPUT
Background image of page 18
  19 How much do you need to save each  month for 30 years in order to have  the $1,234,467 in your account? You need $1,234,467 on this date. 0 360 1 2 PMT PMT PMT ... months before retirement ...
Background image of page 19

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
20 You need a payment such that the  future value of a 360-period annuity  earning 10%/12 per period is  $1,234,467. 360
Background image of page 20
Image of page 21
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/08/2011 for the course FIN 360 taught by Professor Smith during the Spring '10 term at Park.

Page1 / 74

IFM10 Ch29 Lecture - Chapter29 BasicFinancialTools:AReview...

This preview shows document pages 1 - 21. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online