1. FIN 301-F09 Lab 1 TVM

# 1. FIN 301-F09 Lab 1 TVM - Fin 301 Seminars...

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1 Fin 301 Seminars Instructor:     Lu Zhang Seminars :      Monday   (E1), 14:00-14:50, BUS 2-9     Friday(E4), 14:00-14:50, BUS 2-9           Office Hours:  Monday 10:00 to 12:00      You may also email to make an appointment at another time. Office:           Business Building 2-32A  Email:       [email protected]   ; Subject: Lu

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2 Other Information Refer to the course calendar on Ulearn and your syllabus. Note that  there are no seminars on certain dates.  Textbook: Fundamentals of Corporate Finance , 7 th  Canadian  edition.  Authors: Ross, Westerfield, Jordan and Roberts, 2007,  McGraw-Hill Ryerson, Toronto. Calculator : Your are responsible for familiarizing yourself with the  instrument. You could consult your manual or seek more information  under Resources on the course website.      Note: Owning a financial calculator is not required.  Bring your textbook, seminar notes, and your financial calculator (if  you have one) to all seminars.
Time Value of Money 3

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4   For whatever problem you solve:  DRAW A TIMELINE !                                   Future Value and Present Value \$1 FV PV \$1 discounting compounding 0       1       2 T       Period
Future Value – Example Suppose you invest \$1000 for one year at 5%  per year.  What is the future value in one year? Interest = 1000(.05) = 50 Value in one year = principal + interest = 1000 + 50 =  1050 Future Value (FV) = 1000(1 + .05) = 1050 Suppose you leave the money in for another  year.  How much will you have two years from  now? FV = 1000(1.05)(1.05) = 1000(1.05) 2  = 1102.50 5

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Future Value: General Formula FV = PV(1 + r) t FV = future value PV = present value r = period interest rate, expressed as a  decimal t = number of periods Future value interest factor = (1 + r) t 6
Effects of Compounding Simple interest – earn interest on principal only Compound interest – earn interest on principal  and reinvested interest Consider the previous example FV with simple interest = 1000 + 50 + 50 =  1100 FV with compound interest = 1102.50 The extra 2.50 comes from the interest of .

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