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# 4.3 - BASIC APPROACH TIME VALUE OF MONEY 1 1 ESTABLISH...

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1 BASIC APPROACH TIME VALUE OF MONEY

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2 1. ESTABLISH WHETHER PV OR FV CALCULATION PV (PRESENT VALUE) HOW MUCH WOULD ONE PAY? WOULD YOU BUY SOMETHING? VALUE OF SOMETHING TODAY? FV (FUTURE VALUE) VALUE OF SOMETHING IN THE  FUTURE? HOW MUCH WILL AN AMOUNT GROW  TO IN THE FUTURE? SAVING TO BUY SOMETHING?
3 2. IDENTIFY CASH FLOW INVOLVED IN THE SITUATION WRITE DOWN THE CASH FLOWS  INDICATED IN THE PROBLEM

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4 3. ESTABLISH WHETHER LUMP SUM OR ANNUITY LUMP SUM   1. SINGLE AMOUNT ANNUITY   1. EQUAL AMOUNTS 2. UNINTERRUPTED SERIES
5 4. FOR EACH CASH FLOW WRITE DOWN ON A TIME LINE 1. # OF YEARS =  n 2. INTEREST RATE =  i

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6 5. FOR EACH CASH FLOW WRITE DOWN ON A TIME LINE 1. # OF YEARS =  n 2. INTEREST RATE =  i   Year 0 1 2 3 | | | | 100 100 100 Year 0 1 2 3 4 | | | | | Value Present Value

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8 1 . EXAMPLE You are considering buying a stock
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4.3 - BASIC APPROACH TIME VALUE OF MONEY 1 1 ESTABLISH...

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