Chapter_4_Fall2011_s - Chapter Chapter41 Intro The Time...

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Chapter 4 Intro: The Time Value of Money FI 311 Elizabeth Booth Chapter 4 Introduction to Valuation: The Time Value of Money
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Chapter 4 Intro: The Time Value of Money FI 311 Elizabeth Booth Key Concepts and Skills Be able to compute the future value of an investment made today Be able to compute the present value of cash to be received at some future date Be able to compute the return on an investment Be able to compute the number of periods that equates a present value and a future value given an interest rate Be able to use a financial calculator and a spreadsheet to solve time value of money problems
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Chapter 4 Intro: The Time Value of Money FI 311 Elizabeth Booth Basic Definitions Present Value – the economic value in “today’s” terms of some future cash flow Future Value – the economic value in “tomorrow’s” terms of a cash flow today. The amount to which an investment will grow to after earning interest. Interest rate – “exchange rate” between earlier money and later money Discount rate Cost of capital Opportunity cost of capital Required return
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