{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Question

# Question - • While we just demonstrated the differences...

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

Question For the same consulting job (assuming you could earn 12%), would you rather have? 1. \$29,000 paid in payments of \$6,500 at the end of year one, \$7,500 paid at the end of year two, and \$15,000 paid at the end of year three. 2. \$22,459.23 paid today. 1

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

View Full Document
You Don’t Care…Here’s Why… 2 1. \$22,459.23 2. \$22,459.23 3. \$31,553.60/(1.12)3 = \$22,459.23 0 1 2 3 \$6,500 \$7,500 \$15,000 r = .12 0 1 2 3 \$22,459.23 r = .12 0 1 2 3 \$31,553.60 r = .12 They have equivalent values.
Multiple Cash Flows – FV You open an IRA with a \$1,500 deposit today and plan to deposit \$2,200, \$2,600, and \$3,000 at the same time for the next three years. How much will you have at the end of three years assuming an 8% discount rate? Remember, for a single cash flow… FV = PV(1 + r ) t . 3 0 1 2 3 \$1,500 \$2,200 \$2,600 \$3,000 r = .08

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

View Full Document
Multiple Cash Flows – FV 4 You open an IRA with a \$1,500 deposit today and plan to deposit \$2,200, \$2,600, and \$3,000 at the same time for the next three years. How much will you have at the end of three years assuming an 8% discount rate?
Key Point on Cash Flow Timing

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

View Full Document

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: • While we just demonstrated the differences between the timing of payments, from this point forward, assume that the first payment occurs one period from the present ( at the end of the each period ), unless specifically stated 5 One More Before We Move On • How much is the following investment worth? – A promised return of 11% and three, \$5,000 payments beginning at the end of the fourth year and paid consecutively thereafter. • Draw the timeline and using your calculator, calculate: 6 Present Value 7 r = .11 \$3,293.65 \$2,673.20 \$2,967.26 \$8,934.11 0 1 2 3 4 5 6 \$5,000 \$5,000 \$5,000 \$5,000/(1.11)4 \$5,000/(1.11)5 \$5,000/(1.11)6 Future Value In Six Years 8 \$6,160.50 \$5,000.00 \$5,550.00 \$16,710.50 0 1 2 3 4 5 6 \$5,000 \$5,000 \$5,000 \$5,000(1.11)2 \$5,000(1.11)1 \$5,000 r = .11 Compare The Results • What’s the relationship between: – PV = \$ 8,934.11 – FV = \$16,710.50 • What is the FV of \$8,934.11 in 6 years at 11%? 9...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern