Chapter 5 lecture

# So 39 56 buying a car for 56 mario mario besides using

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Unformatted text preview: ws is zero” is 38 5.6. Buying a car for Mario X (1.08) + X (1.08) 2 = 20,000 X 20,000 X+ − =0 2 (1.08) (1.08) 8,903.13 20,000 8,903.13 + − =0 2 (1.08) (1.08) – Note that: • • • • First term = PV of time = 0 deposit Second term = PV of time = 1 deposit deposit Third term = PV of time = 2 payment So, all together, this is an NPV calculation! So, 39 5.6. Buying a car for 5.6. Mario Mario – Besides using the mathematical equation, Besides the book mentions 3 methods of coming up with the payment: up 1. Trial and error – altering the payment in Excel Trial until the NPV equals zero until 2. Goal Seek – letting Excel do #1 3. Using the Excel PV formula (Avoid Method 3) 40 5.6. Buying a car for 5.6. Mario Mario Reference (Example): Reference File: Pfe_chap05.xls File: Worksheet: “page 103” and “page 104” 41 Saving Plan for College Education Saving • • • Reference (Example): Reference File: OtherPracticeProblems_Chp5.xls File: Worksheet: “FutureSave” 42 Pension plans – When saving for a series of future When payments instead of a one-time cash flow, the PV of “cost of the car” is replaced by the PV of those cash flows the • • • Reference (Example): Reference File: OtherPracticeProblems_Chp5.xls File: Worksheet: “PensionPlan” Also, please look into the following file: Also, PensionProblem(withformula)_Chp5 PensionProblem(withformula)_Chp5 43 Recommended Problems Problems • Chapter 5: • Problem 2, 4, 8, 9, 14, 15, 17, 21, 26 44...
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