This shortens the life of the loan without committing

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Unformatted text preview: Business Week (November 2, 1998), pp. 134–135. Table Use The first step in finding the interest or growth rate is to divide the amount received in the earliest year (PV) by the amount received in the latest year (FVn). Looking back at Equation 4.12, we see that this results in the present value interest factor for a single amount for 4 years, PVIFi,4yrs, which is 0.822 ($1,250 $1,520). The interest rate in Table A–2 associated with the factor closest to 0.822 for 4 years is the interest or growth rate of Ray’s cash flows. In the row for year 4 in Table A–2, the factor for 5 percent is 0.823—almost exactly the 0.822 value. Therefore, the interest or growth rate of the given cash flows is approximately (to the nearest whole percent) 5%.13 Calculator Use Using the calculator, we treat the earliest value as a present value, PV, and the latest value as a future value, FVn. (Note: Most calculators WW W 13. To obtain more precise estimates of interest or growth rates, interpolation—a mathematical technique for es...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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