Financial managers prefer present value to future value because they typically make decisions at time zero‚ before the start of a project. 2. A single amount cash flow refers to an individual‚ stand alone‚ value occurring at one point in time. An annuity consists of an unbroken series of cash flows of equal dollar amount occurring over more than one period. A mixed stream is a pattern of cash flows over more than one time period and the amount of cash associated with each period will vary. 3. Compounding
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Management Fall 2010 PROBLEM SET 1 Investment Policy and Bond Portfolio management Due date: Friday‚ September 17‚ 5:00 pm. No late problem sets will be accepted. 1. Assume that at retirement you have accumulated $825‚000 in a variable annuity contract. The assumed investment return is 5.5% and your life expectancy is 18 years. What is the hypothetical constant benefit payment? PV = -825‚000‚ i = 5.5‚ n = 18‚ PMT = 73‚358.93. 2. You manage a portfolio for Ms. Greenspan‚
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Questions. 1. Calculating Annuity Present Values. An investment offers $8‚500 per year for 15 years‚ with the first payment occurring 1 year from now. If the required return is 9 percent‚ what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever? 2. Calculating Annuity Cash Flows. If you put up $25‚000 today in exchange for a 7.9 percent‚ 12year annuity‚ what will the annual cash flow be? 3. Calculating Perpetuity Values. Dawa Financial
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Business mathematics is mathematics used by commercial enterprises to record and manage business operations. Commercial organizations use mathematics inaccounting‚ inventory management‚ marketing‚ sales forecasting‚ and financial analysis. Mathematics typically used in commerce includes elementary arithmetic‚elementary algebra‚ statistics and probability. Business management can be made more effective in some cases by use of more advanced mathematics such as calculus‚ matrix algebra and linear programming
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weights | Annuity Discount Factor | 1-DF or 1-_1_ k ( 1+r)n k | Variance (2) of combined lin funct (X‚Y) | b2V(x)+c2V(y)+2bc•Cov(x‚y) Where b&c are weights | Annuity Present Value | CF X ADF or | Covariance | x y COR(X‚Y) | Annuity Future Value | | Correlation (ρ) | | Annuity Payment | | Mean | fixi | Growing Annuity Present Value | | Variance Of a Sample (s2) | sqrt to get std dev (s) | Perpetuity Present Value
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Things on the exam: All multiple choice questions – no short answers Over chapters 1-4 No formula sheet Memorize ratios from Chapter 2 Chapter 1 Know steps of financial planning process What common features exist in financial plans Chapter 2 Calculating your net worth Balance sheets Income statement KNOW ratios Chapter 3 Time value of money Bring financial calculator Payments Chapter 4 You don’t have to calculate taxes Know about the process Taxable income What
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000‚ which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits‚ the amount in the account upon retirement will be 98845.84(since it is a retirement plan so‚ assumed to be annuity due) correct 91‚523.93 – ordinary annuity in this accumulation phase. 2. $100 is received at the beginning of year 1‚ $200 is received at the beginning of year 2‚ and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent‚ their
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value of $1 to be received after t years at discount rate r: 2. Present value of annuity of $1 per year for t years at discount rate r: $1 (1 + r )t ⎡1 − (1 + r ) − t ⎤ ⎢ ⎥ × $1 r ⎣ ⎦ 1 ⎡ (1 + g )t ⎤ 3. Present value of growing annuity of $1 at rate g per year at discount rate r: ⎢1 − ⎥ × $1 r − g ⎣ (1 + r )t ⎦ $1 r 4. Present value of perpetuity of $1 per year at discount rate r: 5. Present value of perpetuity of $1 with constant growth rate g at discount rate r: $1 r−g 6. Measures
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Problem Set 1 Solutions 1. Calculating Taxes. The Herrera Co. had $246‚000 in taxable income. Using the rates from Table 2.3 in the chapter calculate the company’s income taxes. What is the average tax rate? What is the marginal tax rate? The total amount of income tax is 0.15($50‚000 = $7‚500 + 0.25(($75‚000 – 50‚000) = $6‚250 + 0.34(($100‚000 – 75‚000) = $8‚500 + 0.39(($246‚000 – 100‚000) = $56‚940 Total = $79‚190 The average tax rate is the total amount of tax
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| FNCE 10001 | Assignment 1 | | Thomas Hu 586870 | 8/12/2012 | Tutorial: Thursday 1:00pm-2:00pm | Question 1 A risk premium is the difference in value between the expected return on a security and the interest rate on an alternative‚ “risk-free” investment both of the same maturity. An asset’s risk premium is a form of compensation for investors who are willing to take on the uncertainties associated with a risky investment. This is used to attract investors to purchase equity
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