**Unformatted text preview: **6 Formulas
Discounted Cash Flow Valuation 1 Key Concepts and Skills Be able to compute the future value of multiple
Be
cash flows
cash
Be able to compute the present value of multiple
Be
cash flows
cash
Be able to compute loan payments
Be able to find the interest rate on a loan
Understand how interest rates are quoted
Understand how loans are amortized or paid off 2 Chapter Outline Future and Present Values of Multiple
Future Cash Flows
Cash Valuing Level Cash Flows: Annuities and
Valuing
Perpetuities
Perpetuities Comparing Rates: The Effect of
Comparing
Compounding
Compounding Loan Types and Loan Amortization 3 Multiple Cash Flows –Future
Multiple
Value Example 6.1
Value Find the value at year 3 of each cash
Find flow and add them together.
flow Today (year 0): FV = 7000(1.08)3 = 8,817.98
Year 1: FV = 4,000(1.08)2 = 4,665.60
Year 2: FV = 4,000(1.08) = 4,320
Year 3: value = 4,000
Total value in 3 years = 8,817.98 + 4,665.60 + 4,320
Total
+ 4,000 = 21,803.58
4,000 Value at year 4 = 21,803.58(1.08) = 23,547.87 4 Multiple Cash Flows – FV
Multiple
Example 2
Example Suppose you invest $500 in a mutual
Suppose fund today and $600 in one year. If the
fund pays 9% annually, how much will
you have in two years?
you FV = 500(1.09)2 + 600(1.09) = 1,248.05 5 Multiple Cash Flows – Example 2
Multiple
Continued
Continued How much will you have in 5 years if you
How make no further deposits?
make First way: FV = 500(1.09)5 + 600(1.09)4 = 1,616.26 Second way – use value at year 2: FV = 1,248.05(1.09)3 = 1,616.26 6 Multiple Cash Flows – FV
Multiple
Example 3
Example Suppose you plan to deposit $100 into an
Suppose account in one year and $300 into the
account in three years. How much will
be in the account in five years if the
interest rate is 8%?
interest FV = 100(1.08)4 + 300(1.08)2 = 136.05 +
349.92 = 485.97
349.92 7 Multiple Cash Flows – Present
Multiple
Value Example 6.3
Value Find the PV of each cash flows and add
Find them
them Year 1 CF: 200 / (1.12)1 = 178.57
Year 2 CF: 400 / (1.12)2 = 318....

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- Spring '14
- Time Value Of Money, Annual Percentage Rate, Future Value, Net Present Value, Valuation, Mortgage loan