MGMT310_lecture9

# MGMT310_lecture9 - Lecture 9 Lecture 9 Announcements: Today...

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cture 9 Announcements: Lecture 9 Today we will finish up some concepts from Chapter 6! This stuff will be important as we enter bond/stock valuation! Then we will talk a bit about individual investor performance! Then I’ll hand back exams!

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Pay careful attention to compounding period… Two choices of lottery payoffs. 1. \$20 every month (starting next month) for two years 2. \$122 every six months (starting in 6 mo.) for two years Interest rate is 12% (APR), compounded monthly Which is better (what is the PV of each cash flow stream)? **Now e ffective nnual te 0 5 t hat ould e Now if the effective annual rate is 10.25%, at what rate should we discount semi annual payments? **What if the quoted interest rate is 10% compounded semi annually. ow hat ould e iscount mi nual ayments? Now at what rate should we discount semi annual payments?
What is C (the payment) Suppose you want to borrow \$100,000. Your bank will lend you the money under the stipulations that: 1. You repay the loan in equal, annual installments over 10 years. 2. The annual interest rate is 12%. 3. Your first payment must begin in one year. hat will be your annual payments? (i.e., solve for C) What will be your annual payments? (i.e., solve for C)  11 Annuity P c a l l : T r  Rc V e: C r  Note: This type of loan is called an amortized loan . More on this later.

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## This note was uploaded on 02/27/2012 for the course MGMT 310 taught by Professor Matthewjamesbarcaskey during the Spring '08 term at Purdue University-West Lafayette.

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MGMT310_lecture9 - Lecture 9 Lecture 9 Announcements: Today...

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