I .
Figure 4.3
I
Present
value
of $1 ($)
1.00
.90
iwe;:
r= 0%
.80
.70
.60
.50
.40
r=
10%
.30
.20
r= 20%
.10
I
I
I
!
2
I
3
4
5
I
!
6
I
7
I
9
8
10
.
Time
(years)
441
Quick Quiz: Part 2
What is the relationship between present
value and future value? (Slid
Tax on $4 million
Tax Liability on $4,000,000
Taxable Income Levels',
$
I$
I
I
$
50,001
$
75,001
$
$
100,001
I$
$
335,001
$
10,000,001
$
15,000,001
I
I
I
$
18,333,334
$
$
$
$
217
The Concept of Cash Flow
Cash flow = one of the most important
pieces of in
~
9.
When the Fed uses open market operations by selling some of its Treasury securities to investors in the U.S.,
there will be
\
\i) an outward shift in the supply schedule of loanable funds.
b.
c.
no shift in the supply schedule of loanable funds.
d.
~
14. An investor purchased an NCD ,a year ago in the secondary market for $980,000. He redeems it today and
receives $1,OOO,OOO.Healso receives interest of$30,000. The investor's annualized yield on this investment
IS
a.
2.0 percent.
b.
5. 10 percent.
c.
29.
When financial institutions expect interest rates to _
a.
increase; sell shortterm securities and buy bonds
a6
~.
.
increase; sell bonds and buy shortterm securities
b.
, they may _
~e=:a~;
sell bonds and buy shortterm securities
Zero coupon bond s
38.
Sioux Financial Corp. has forecasted its bond portfolio value for one year ahead to be $105 million. In one
year, it expects to receive $10,000,000 in coupon payments. The bond portfolio today is worth $101 million.
What is the forecasted return of th
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Chapter 4 Introduction to
Valuation: The Time
Value of Money
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fr(
i
Key Concepts and S
TI BAII+: Set Time Value
Parameters
Be sure calculator is set for cash flows at the
END of each period
To set END (for cash flows occurring at the end
of the period),
III key,

Press

Press"
(above ~)
.
This is a toggle switch. The default is END .
Future Value:
Important Relationship I
For a given interest rate:
_ The longer the time period,
_ The higher the future value
\
FV = PV(1 + r)t
J
For a given r, as t increases, FV increases
425
Future Value
Important Relationship II
'.I
~
For a given ti
You want to begin saving for your daughter's cor~c:r
education and you estimate that she will need
$150,000 in 17 years. If you feel confident that you
can earn 8% per year, how much do you need to
invest"tedayq, ,'."
Calculator
Formula
PV
Solution:
017
=
NQ.\ ~\ h\ '?J ~rW
t,\,WI~.
\ ~=C\)JrJ(,X'I1 rl's.se:\:s ~ ClL(raJt HCLbi l', +10
oJ3\)
~
The Balance Sheet
Figure 2.1
Total Value of Assets
Total Value of Liabilities
and Shareholders' Equity
25
The Balance Sheet
Net working capital
 Current Assets mi