class_8_27-Sep-2004investmentdecisions(6slides) - Mondays...

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1 1 investment decisions class #08 start button 2 Monday’s exam • Don’t worry !!!!! • HAVE READ THE TEXTBOOK • IF you have done all the: --homework – quizzes – suggested problems • THEN, you will be fine 3 Monday’s exam (2) • Monday’s exam is planned to take 60 minutes to complete • You will have 80 minutes - so you do not feel rushed • You may bring one double sided cheat sheet with: – any handwritten notes – any handwritten formulae REMEMBER TO READ QUESTIONS CAREFULLY 4 Monday’s exam (3) • The exam will cover the material presented (and reviewed) in classes #1 - #8 (through Monday 27-Sept) • This corresponds to chapters 1 to 6 in the textbook and bonds. • Concentrate on what we have been concentrating on • No accounting knowledge needed • EVERYONE else is expected to take the exam on Monday 4-Oct-2004 • No exceptions 5 Monday’s exam (4) • How can I study for the exam ? – do the homework – do the suggested problems – do extra problems in the book – do problems in the study guide – do the challenge problems • No tricks, nothing difficult here, the story is still the same as it was the first day of the course 6 Today’s plan Review from last class Real vs. nominal cash flows and rates More NPV rules
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2 7 Review Decision Rules What are the three rules for evaluating projects? Payback rule •I R R NPV rule Which rule do we like and why? 8 Real vs. nominal rates • What is a real vs. nominal interest rate? • A nominal rate tells you how much money you will have in one year if you put your money in a bank. – invest $100 for one year at 10% and it grows to $110 – but … how much will $110 buy in one year ? • An inflation rate tells you how much a basket of goods costs next year compared with this year. – $100 buys you X-goods today – you will need $106 to buy the same X-goods one year from today – the inflation rate is 6% 9 Real vs. nominal rates (2) • What is a real rate?
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class_8_27-Sep-2004investmentdecisions(6slides) - Mondays...

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