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Unformatted text preview: 1 Fin 301 Seminars Instructor: Lu Zhang Seminars : Monday (E1), 14:0014:50, BUS 29 Friday(E4), 14:0014:50, BUS 29 Office Hours: Monday 10:00 to 12:00 You may also email to make an appointment at another time. Office: Business Building 232A Email: fin301@ualberta.ca ; Subject: Lu 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, McGrawHill 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 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 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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 Fall '10
 andrew
 Finance, Business

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