from now discounted back to present at 20% 5-5A. (Compound Annuity) What is the accumulated sum of each of the following streams of payments? a. $500 a year for 10 years compounded annually at 6% b. $150 a year for 5 years compounded annually at 11% c. $35 a year for 8 years compounded annually at 7% d. $25 a year for 3 years compounded annually at 2% 5-6A. (Present Value of an Annuity) What is the present value of the following annuities? a. $3‚000 a year for 10 years discounted back to the present
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3. An annuity stream of cash flow payments is a set of: a. level cash flows occurring each time period for a fixed length of time. b. level cash flows occurring each time period forever. c. increasing cash flows occurring each time period for a fixed length of time. d. increasing cash flows occurring each time period forever. e. arbitrary cash flows occurring each time period for no more than 10 years. c 4. An annuity stream where the payments occur forever is called a(n): a. annuity due.
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Separation of ownership and managementship 4 3. The role of the financial manager and the financial markets 4 How to calculate present values 5 1. Future values and present values 5 2. Looking for shortcuts – Perpetuities and annuities 6 3. More shortcuts – Growing perpetuities and annuities 7 4. How interests is paid and quoted 7 Valuing bonds 7 1. Using the present value formula to value bonds 7 2. How bond prices vary with interest rates 8 3. Real and nominal rates of interest 8 The value
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Homework 1 Parsons Core Finance Homework 1 ___________________________________________________________________________ Question 1 You are head of a Family Endowment for the Arts. You have decided to fund a music school in San Diego in perpetuity. You will give the school $1 million immediately‚ and subsequent annual $1 million dollar payments growing at the rate of inflation‚ which you estimate to be 3% per year (i.e.‚ you will contribute $1‚000‚000 plus inflation next year (one year from
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FIN41340: Quantitative Methods in Finance Tutorial: Time Value of Money Lecturer: Email: Dr. Thomas Conlon conlon.thomas@ucd.ie Tutorial Questions 1. What is the present value of a 3-year annuity of $100 if the interest rate is 6%? What is the present value of this annuity‚ if you have to wait two years instead of one year for the first payment? 2. Your hedge fund can lease a supercomputer for the purposes of high frequency trading for $8‚ 000 per year (paid at year end) for six years
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MGMT640 – Textbook Notes PART 1 FUNDAMENTALS OF CORPORATE FINANCE Chapter 1 – The Financial Manager and The Firm 1.1 The Role of the Financial Manager * financial manager should make decisions that maximize value of owners stock/wealth – wealth is the economic value of the assets someone possesses * stakeholders – anyone other than an owner (stockholder) with a claim on the cash flows of a firm‚ including employees‚ suppliers‚ creditors‚ and the government * productive
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CORPORATE FINANCE – CONCEPT QUESTIONS Class Notes - Introduction to Corporate Finance 1. Finance point of view: Corporation: a money processing machine? * Product markets: everything what corporates make (lead with customers‚ suppliers‚ labor) * Capital markets: generic term for the entities which supply cash to this money processing machine‚ and the processing machine uses the money to do things and then periodic sends money back to the capital market there are inflows from the
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efficiency‚ liquidity and leverage? 7 Key topics: Value Chapter 5: The Time Value of Money • Why is there a time value of money? • How can we calculate future from present values and vice versa? • What are annuities & perpetuities? • How can we calculate the present value of annuities & perpetuities? 8 Key topics: Value Chapter 6: Valuing Bonds
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job with a local bank. As part of its evaluation process‚ you must take an examination on time value of money analysis covering the following questions: a. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2; (2) an ordinary annuity of $100 per year for 3 years; and (3) an uneven cash flow stream of -$50‚ $100‚ $75 and $50 at the end of Years 0 through 3. (1) 100 0 1 2 100 0 1 2 (2) I%I% I%I% (3) 100 50 75 0 1 2 3 -50 100 50 75 0 1 2 3 -50
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F J Answer: a EASY 7. Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods. a. True b. False (28.2) Compounding F J Answer: b EASY 8. Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods. a. True b. False (28.2) Compounding F J Answer: a EASY 9. Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts. a. True b. False
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