applicable if the loan or financial obligation due now Finding the Size of Each Payment The size of the periodic payment to settle a debt is highly dependent on the time the payment is made. For ordinary annuity ? ?=? 1 − 1 + ? −? For annuity due ? ?=? 1 − 1 + ? −? 1 + ? For deferred annuity ? 1+? ? ?=? 1 − 1 + ? −? Example The cash price of a shopping equipment was P 120‚000. Alex bought it with a down payment P 20‚000 and the balance was payable at the end of every quarter for two years.
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and investment‚ our group will answer three questions below: Question 1: What is time value of money? How is it important? Question 2: Motivation and formula of calculation of future values and present values of a simple (single) cash flow‚ an annuity‚ and a perpetuity? Question 3: Implications in financing and investment? Alternating theories is illustrations and examples that allow people to image them in practice. CONTENT QUESTION 1: WHAT IS TIME VALUE OF MONEY? HOW IS IT IMPORTANT?
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Chapter 06 Discounted Cash Flow Valuation Multiple Choice Questions 1. An ordinary annuity is best defined by which one of the following? A. increasing payments paid for a definitive period of time B. increasing payments paid forever C. equal payments paid at regular intervals over a stated time period D. equal payments paid at regular intervals of time on an ongoing basis E. unequal payments that occur at set intervals for a limited period of time 2. Which one of the following
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FORMULA SHEET – for student reference only Perpetuity: The value of a perpetuity of $RM1 per year is: Equivalent Annual Cost: If an asset has a life of ‘t’ years‚ the equivalent annual cost is: Annuity: The value of an annuity of $RM1 per period for t years (t-year annuity factor) is: Measures of Risk: Variance of returns = σ2 = expected value of Standard deviation of returns‚ σ = Covariance between returns of stocks 1
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back to the present at 20 percent 5-5A. (Compound annuity) What is the accumulated sum of each of the following streams of payments? $500 a year for 10 years compounded annually at 5 percent $100 a year for 5 years compounded annually at 10 percent $35 a year for 7 years compounded annually at 7 percent $25 a year for 3 years compounded annually at 2 percent 5-6A. (Present value of an annuity) What is the present value of the following annuities? $2‚500 a year for 10 years discounted back to
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what is the present value of your winnings? Answer: (It is an annuity of 50’000 each year for 20 years) Exercise 3 Rusty Steele will receive an annuity of $10‚000 for the next 10 years; at the end of the next three years (that is year 11‚ 12‚ 13) he will get the following payments: $4‚000‚ $7‚000‚ and $9‚000. At a discount rate of 10 percent‚ what is the present value of all future benefits? Answer: In this case we have an annuity of 10000 for 10 years and then 3 single cash flows of 4000‚ 7000
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1. Consider a 1-Year $10‚000 CD A. The future value of a $10‚000 CD that has a maturity of 1 year at maturity with 10% interest is $11‚000. Financial Calculator Inputs: $ -10‚000=PV‚ 1=N‚ I=10‚ FV=? ($11‚000) B. The future value of a 1-year‚ $10‚000 CD after one year at an interest rate of 5.0% is $10‚500. Financial Calculator Inputs: $-10‚000=PV‚ 1=N‚ 5=I‚ FV=? ($10‚500) The future value of a 1-year‚ $10‚000 CD after one year at an interest rate of 15.0% is $11‚500. Financial
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10 payments). | | | | | * Question 5 2 out of 2 points | | | Which of the following statements is CORRECT?Answer | | | | | Selected Answer: | The cash flows for an annuity due must all occur at the beginning of the periods. | Correct Answer: | The cash flows for an annuity
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CHAPTER 4 PART II: VALUATION AND CAPITAL BUDGETING Discounted Cash Flow Valuation The signing of big-name athletes is often accompanied by great fanfare‚ but the numbers are often misleading. For example‚ in late 2010‚ catcher Victor Martinez reached a deal with the Detroit Tigers‚ signing a contract with a reported value of $50 million. Not bad‚ especially for someone who makes a living using the “tools of ignorance” (jock jargon for a catcher’s equipment). Another example is the contract signed
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Slide 4.1 Corporate Financial Management‚ 5th edition Glen Arnold Mathematical Tools For Time Value of Money Glen Arnold‚ Corporate Financial Management‚ 5th Edition © Pearson Education Limited 2013 Slide 4.2 Simple Interest and Future Value • Simple interest A sum of £10 is deposited in a bank account that pays 12 per cent per annum. At the end of year 1 the investor has £11.20 in the account. F = P(1 + i) 11.20 = 10(1 + 0.12) where F = Future value‚ P = Present value‚ i
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