Viva Voce

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Time Value of Money 4 Financial Management (13th edt) By E.F. Bringham and M.C. Ehrhardt 4-1 Time Value of money  Receiving $1 today is worth more than $1 in the future  Today’s dollar can be invested to have more dollars tomorrow  Opportunity cost is the interest we could have earned on $1 if received earlier  Opportunity cost rate is the rate of return on the best available alternative investment of equal risk. 4-2 1 Compounding and Discounting  Compounding  Translating today’s $1 into its equivalent FV  FVn = PV ( 1 + i )n  FV1= 100(1+.10)1=110  Discounting  Translating tomorrow's $1 into its equivalent PV  PVn = FV÷( 1 + i )n  PV1= 110÷ (1+.10)1=100 4-3 Compounding and Discounting When making investment…show more content…
 PMT {1 - (1  r)-n } r PV (Immediate) = PMT (PVIFA i, n ) 4-20 10 PVIFAi,n (PVIFA Table) PVIF The PV of an annuity of $1 per period n i=2% i=4% i=6% i=8% 1 2 3 4 5 6 7 8 9 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.326 8.162 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 i=10% i=10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 4-21 PV of Your Bank Loan Cynthia Smart agrees to repay her PMT loan in 24 monthly PVImm.  {1 - (1  r)-n } r installments of $250 each. If the interest rate on the loan is $250 0.75% per month PVImm = {1 - (1 + 0.0075)-24 } 0.0075 (9% per annum), what is the present =$5,472.29 value of her loan payments? 4-22 11 PV of an Annuity Due PVDue  PMT {1 - (1  r)-n }(1  r) r PV
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