Chapter%204

Chapter%204 - FIN3100: Chapter 4 Time Value of Money Part 2...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
FIN3100: Chapter 4 Time Value of Money Part 2
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Learning Objectives Compute the future value and present value of multiple cash flows. Determine the future value of an annuity. Determine the present value of an annuity. Adjust the annuity formula for present value and future value for an annuity due, and understand the concept of a perpetuity. Calculate payments and waiting time for an annuity. Distinguish between the different types of loan repayments: discount loans, interest-only loans, and amortized loans.
Background image of page 2
Multiple Payment Streams With unequal periodic cash flows, treat each of the cash flows as a lump sum and calculate its FV or PV over the relevant number of periods. Sum up the individual future values to get the value of the multiple payment streams.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
FV Example Suppose you invest $500 in a mutual fund today and $600 in one year. If the fund pays 9% annually, how much will you have in two years? FV = 500(1.09) 2 + 600(1.09) = 1,248.05
Background image of page 4
PV Example You are offered an investment that will pay you $200 in one year, $400 the next year, $600 the next year and $800 at the end of the next year. You can earn 12 percent on very similar investments. What is the most you should pay for this one?
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
PV continued Find the PV of each cash flow and add them Year 1 CF: 200 / (1.12) 1 = 178.57 Year 2 CF: 400 / (1.12) 2 = 318.88 Year 3 CF: 600 / (1.12) 3 = 427.07 Year 4 CF: 800 / (1.12) 4 = 508.41 Total PV = 178.57 + 318.88 + 427.07 + 508.41 = 1,432.93
Background image of page 6
PV Timeline 0 1 2 3 4 200 400 600 800 178.57 318.88 427.07 508.41 1,432.93
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Suppose you are looking at the following possible cash flows: Year 1 CF = $100; Years 2 and 3 CFs = $200; Years 4 and 5 CFs = $300. The required discount rate is 7%.
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/17/2011 for the course FIN 3100 taught by Professor Gillette during the Fall '08 term at Kennesaw.

Page1 / 27

Chapter%204 - FIN3100: Chapter 4 Time Value of Money Part 2...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online