FIN422 Cheat sheet

FIN422 Cheat sheet - [1-(1/1.01)/.01] besides investment is...

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Unformatted text preview: [1-(1/1.01)/.01] besides investment is PV) if NPV is less than PV than its worth less than it cost, therefore not a good investmentl.Investing in bank at insured rate:(amount to invest)*(1+r)PV of an investment:(CF at Date 1)/(1+r)NPV:-Cost+PVCompounding:Loan Amount*(1+r)2 Future Value of an Investment: (CF to be invested today)*(1+r)t How much to lend today to get $1 in 2y:PV*(1+r)2 =$1Present Value of an Investment: (CF at Date T)/ (1+r)t PV=FV/(1+disc. Rate)tNPV=-Co+(C1/1+r)+(C2/1+r2)+Compounding Periods (semiannually):(deposit amount)*(1+r/2)2 where 2 is the number of compounding periods. EAR:(1+r/m)m-1, m= times compoundedAPR:r*(365/# days)Future value with compounding:(initial investment)*(1+r/m)mT Continuous Comounding: (initial investment)*erT, e=2.718 PV when Pay X at end of T year @ rate of R: X*(1/erT)=PVPV of Perpetuity: [C/(1+r)]+ [C/(1+r)2]+ [C/(1+r)3] or C/r PV of Growing Perpetuity:(CF/r-g)Price of stock today:[dividend about to pay]+[future dividend/r-g] future dividend= dividend*1+gPresent Value of an Annuity:C/r-C/r*[1/(1+r)t]Future Value of anAnnuity:C*[(1+r)t -1/r]investment that will pay $1,000/year for 10 years.earn a rate of 9% per year on similar investments, how much willing to pay for thisannuity?:10 into N, 9 into I/Y, and 1000 (a cash inflow) into PMT. Now press CPTPVto solve for the present value. The answer is -6,417.6577. Again, this is negative because it represents the amount you would have to pay (cash outflow) today to purchase this annuity.If borrowing $1000 each year for 10 years at a rate of 9%, and thenpaying back the loan immediate after receiving the last payment.How to repay?All we need to do is to put a 0 into PVto clear it out, and then press CPTFVto find that the answer is -15,192.92972 (a cash outflow).Present Value of 4yr college:(expense)*[1-(1/1+r)4/r], take PV/(1+r)last deposit-> PV at Date 0. C*A17.14=PV @Date 0, solve for C, where A17.14 is a 17 yr annuity at 14%.B. Present Value Annuity Problems In a present value annuity problem, Assume N = 5, I/Y = 8%, PMT = $ -1, and PV = $ 3.9927. Clear: [2nd] [CLR TVM]. 1. Present Value:Input 5 [N], 8 [I/Y] , and 1[+/-] [PMT]. Press [CPT] [PV]. 2. Payment:Input 5 [N], 8 [I/Y] , and 3.9927 [PV]. Press [CPT] [PMT]. 3. Interest Rate: Input 5 [N], 1[+/-] [PMT], 3.9927 [PV]. Press [CPT] [I/Y]. This is the interest rate implicit in the cash flow stream and the PV. It is the Internal Rate of Return of the annuity. 4. Number of Payments: Input 8 [I/Y], 1[+/-] [PMT], and 3.9927 [PV]. Press [CPT] [N]. C. Future Value Annuity Problems Assume N = 5, I/Y = 8%, PMT = $ -1, and FV = $ 5.8666. Clear: [2nd] [CLR TVM].1. Future Value: Input 5 [N], 8 [I/Y] , and 1 [+/-] [PMT]. Press [CPT] [FV]. 2. Payment: Input 5 [N], 8 [I/Y] , and 5.8666 [FV]. 1....
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