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106 Disc wk 2

# 106 Disc wk 2 - BUS106 INTRODUCTIONTO FINANCIAL MANAGEMENT...

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BUS 106:   INTRODUCTION TO  FINANCIAL  MANAGEMENT TA:  Jessica Yount

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AGENDA Introduction Syllabus Concept review Homework
TODAY OR TOMORROW? A dollar today is worth more than a dollar tomorrow:  1. Inflation  2. Risk  3. Opportunity

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WHAT DOES IT MEANS? The “interest rate” can be interpreted in at least  three ways:   Required rate of return   Discount rate   Opportunity cost
TIME VALUE AND YOUR  CALCULATOR Calculator notation:  N = number of years or number of payments      R = interest rate per period  PV = present value  FV = future value  PMT = payments (for annuities)  {Not considered  now!}

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FUTURE VALUE FV = PV * (1 + R) Example:  Find the FV of a \$600 investment if you  can earn a rate of return of 12% over a 12-year  period.
FUTURE VALUE FV = PV * (1 + R) Example:  Find the FV of a \$600 investment if you  can earn a rate of return of 12% over a 12-year  period.  N = 12; R = 12%; PV = 600;   FV = \$2,337.59

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PRESENT VALUE PV = FV / (1 + R) Example:   Find the PV of a \$2,500 cash flow to be  received in 5 years, given a discount rate of 8%.
PRESENT VALUE PV = FV / (1 + R) Example:  Find the PV of a \$2,500 cash flow to be  received in 5 years, given a discount rate of 8%.  N = 5; R = 8%; FV = 2,500;   PV = \$1,701.46

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106 Disc wk 2 - BUS106 INTRODUCTIONTO FINANCIAL MANAGEMENT...

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