International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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With regard to compounding, if you were an investor and you had a choice of daily, monthly, or quarterly compounding, which would you choose?
Question and my answer is below. Can you help me determine what I have done incorrectly? I believe it may be with the PMT line. I selected 0 because it doesn't say that her payments will be reinvested.
investment you made in a friend’s business. She will pay you $22,809 at the end of this year, $45,618 at the end of next year, and $68,427 at the end of the year after that (three years from today). The interest rate is 11.5% per year.
What is the PV of your windfall?
Financial Calculator:
N = 1 year
I/Y = 11.5% *Note: Only place 11.5 press I/Y; no division or equal sign like mortgage
FV = 22,809
PMT = 0 *Note: Payment here is any additional deposits. It says she pays you, not reinvest)
CPT PV = 20,456.50
b. What is the FV of your windfall in three years?
Financial Calculator:
N = 3 year
I/Y = 11.5% *Note: Only place 11.5 press I/Y; no division or equal sign like mortgage
PV = 68,427
PMT = 0 *Note: Payment here is any additional deposits. It says she pays you, not reinvest)…
If Inflation and the interest rate were both zero, would there still be a time value of money?
Stated another way, if interest rates (and other investments) and inflation were both 0%, would you be indifferent between your boss paying you at the end of the week, or in 20 years?I believe that all of you would rather receive the same dollars earlier rather than later, so, any other suggestions on WHY there is a time value of money?
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