Class 5 9-5

Class 5 9-5 - Class 5 Combining Tools ISE2014 Click to edit...

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Click to edit Master subtitle style Class 5 – Combining Tools ISE2014 Fall 2011

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Your Toolbox Cash Flow Diagrams F/P P/F P/A F/A A/P
Annuities Review Annuities are cash flows of equal value that occur in consecutive periods We have 4 tools for manipulating annuities P/A A/P F/A A/F

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Annuities Review A graduating high school senior is planning on attending college at a cost of \$40,000 for each of the next 4 years At an interest rate of 3%, he/she wants to know the equivalent value of that tuition in today’s dollars
Annuities Review Draw a Cash Flow Diagram What are we looking for? \$ Present Value Setup Problem Use P/A tool X0 = \$40,000(P/A, 3%, 4) X0 = \$40,000(3.7171)

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Differed Annuities Now suppose you’re the proud parent of a newborn You anticipate your child going to college for 4 years, but starting 18 years from now Let’s assume college will still cost \$40,000 year and a similar 3% interest rate You want to know the equivalent value of that tuition in today’s dollars (18 years prior)
Differed Annuities How does this differ from the previous problem? Lets draw a Cash Flow Diagram to

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This note was uploaded on 10/04/2011 for the course ISE 2014 at Virginia Tech.

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Class 5 9-5 - Class 5 Combining Tools ISE2014 Click to edit...

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