cfc session 6 ch6+7

# 935 873 816 763 713 8 926 857 794 735 681 certified

This preview shows page 1. Sign up to view the full content.

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

Unformatted text preview: nancial Controller CFC Using Present Value Tables = \$1,000 (PVIF7%,2) = \$1,000 (.873) = \$873 [Due to Rounding] Period 6% 7% 8% 1 .943 .935 .926 2 .890 .873 .857 3 .840 .816 .794 4 .792 .763 .735 5 .747 .713 .681 PV2 26 Certified Financial Controller CFC 13 Story Story Problem Example Julie Miller wants to know how large of a deposit to make so that the money will grow to \$10,000 in 5 years at a discount 10, rate of 10%. 0 1 2 3 4 5 10% \$10,000 10, PV0 27 Certified Financial Controller CFC Story Problem Solution Calculation based on general formula: based on general formula: PV0 = FVn / (1+i)n PV0 = \$10,000 / (1+ 0.10)5 10, = \$6,209.21 209. Calculation based on Table I: based on Table I: PV0 = \$10,000 (PVIF10%, 5) 10, PVIF = \$10,000 (.621) 10, = \$6,210.00 [Due to Rounding] 210. 28 Certified Financial Controller CFC 14 Types of Annuities An Annuity represents a series of equal An Annuity series of equal payments (or receipts) occurring over a specified number of equidistant periods. Ordinary Ordinary Annuity: Payments or receipts occur at the end of each period. Annuity Annuity Due: Payments or receipts occur at the beginning of each period. 29 Certified Financial Controller CFC Examples of Annuities Student Loan Payments Car Loan Payments Insurance Premiums Mortgage Payments Retirement Savings 30 Certified Financial Controller CFC 15 Parts of an Annuity (Ordinary Annuity) End of Period 1 0 End of Period 2 End of Period 3 1 2 3 \$100 \$100 \$100 Equal Cash Flows Each 1 Period Apart Today 31 Certified Financial Controller CFC Parts of an Annuity (Annuity Due) Beginning of Period 1 Beginning of Period 2 0 1 2 \$100 \$100 \$100 Today 32 Beginning of Period 3 3 Equal Cash Flows Each 1 Period Apart Certified Financial Controller CFC 16 Overview of an Ordinary Annuity -- FVA Cash flows occur at the end of the period 0 1 2 i% n n+1 n+ ... R R R R = Periodic Cash Flow FVAn = R(1+i)n-1 + R(1+i)n-2 + ... + R(1+i)1 + R(1+i)0 33 FVAn Certified Financial Controller CFC Example of an Ordinary Annuity -- FVA Cash flows occur at the end of the period 0 1 2 3 \$1,000 4 \$1,000 7% \$1,000 \$1,070 \$1,145 FVA3 = \$1,000(1.07)2 + \$1,000(1.07)1 + \$1,000(1.07)0 \$3,215 = FVA3 = \$1,145 + \$1,070 + \$1,000 = \$3,215 34 Certified Financial Controller CFC 17 Hint on Annuity Valuation The future value of an ordinary future value an ordinary annuity can be viewed as end occurring at the end of the last cash flow period, whereas the future value of an annuity due can be viewed as occurring at beginning the beginning of the last cash flow period. 35 Certified Financial Controller CFC Valuation Using Table III = R (FVIFAi%,n) = \$1,000 (FVIFA7%,3) = \$1,000 (3.215) = \$3,215 Period 6% 7% 8% 1 1.000 1.000 1.000 2 2.060 2.070 2.080 3 3.184 3.215 3.246 4 4.375 4.440 4.506 5 5.637 5.751 5.867 FVAn FVA3 36 Certified Financial Controller CFC 18 Overview View of an Annuity Due -- FVAD Cash flows occur at the beginning of the period 0 1 2 3 n-1 R R R R R FVADn = R(1+i)n + R(1+i)n-1 + ... + R(1+i)2 + R(1+i)1 = FVAn (1+i) FVA 37 n ... i% FVADn Certified Financial Controller CFC Example of an Annuity Due -- FVAD Cash flows occur at the beginning of the period 0 1 2 3 \$1,000 \$1,000 4 \$1,070 7% \$1,000 \$1,145 \$1,225 FVAD3 = \$1,000(1.07)3 + \$3,440 = FVAD3 \$1,000(1.07)2 + \$1,000(1.07)1 = \$1,225 + \$1,145 + \$1,070 = \$3,440 38 Certified Financial Controller CFC 19 Valuation Using Table III = R (FVIFAi%,n)(1+i) = \$1,000...
View Full Document

## This note was uploaded on 05/28/2013 for the course FINANCE economy taught by Professor Nill during the Fall '12 term at Bronx School Of Law And Finance.

Ask a homework question - tutors are online