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## Future Cash Flows, Price of Bonds/Present Value

by: Shannon Panagopoulos

9

0

2

# Future Cash Flows, Price of Bonds/Present Value ECO 315

Marketplace > DePaul University > Economcs > ECO 315 > Future Cash Flows Price of Bonds Present Value
Shannon Panagopoulos
DePaul
GPA 3.52

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Equations and examples, defintions
COURSE
Intro to Money and Banking
PROF.
Ingunn Lonning
TYPE
Class Notes
PAGES
2
WORDS
CONCEPTS
EC0 315, bonds, Present Value, Future Cash Flows
KARMA
25 ?

## Popular in Economcs

This 2 page Class Notes was uploaded by Shannon Panagopoulos on Friday January 8, 2016. The Class Notes belongs to ECO 315 at DePaul University taught by Ingunn Lonning in Winter 2016. Since its upload, it has received 9 views. For similar materials see Intro to Money and Banking in Economcs at DePaul University.

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Date Created: 01/08/16
­Interest Rate= the rental price of funds ­Price of bonds: Present Value ­Future Cash Flow= Present Value * (1 + interest rate) Finding Future Cash Flow Ex1 : CF sub 1= PV( 1 + i) Deposit \$100 in bank for one year, 10% interest rate: CF sub 1 (cash flow after 1 year) = \$100 ( 1 + 0.1) CF sub 1 = \$110 Ex2: Deposit \$100 in bank for two years, 10% interest rate nt: cash flow after 2 years CF sub 2 = 100 ( 1+ 0.1) (1+ 0.1)  or   100 ( 1 + 0.1 )^2 CF sub 2= \$121 Ex3: Deposit \$100 in bank for three  years, 10% interest rate nt: cash flow after 2 years CF sub 3 = 100 ( 1 + 0.1)^3  CF sub 3= \$133.10 In other words: CF sub n = PV ( 1 + 0.1)^n  Finding Present Value We know that CF sub 1 = PV ( 1 + i) ^n Manipulate the equation: (CF sub n) / (1+i)^n  Ex4: If you receive \$110 in one year, with an interest rate of 10%, what is the present  value? (CF sub n) / (1+i)^n  (\$110 sub 1) / ( 1+ 0.1)  PV = \$100 (CF sub n) / (1+i)^n  Ex5: If you receive \$110 in one year, with an interest rate of 5%, what is the present  value? (CF sub n) / (1+i)^n  (\$110 sub 1) / ( 1 + 0.05)  PV= \$104.76 Ex6: If you receive \$1000 in two years, with an interest rate of 3%, what is the present  value? (CF sub n) / (1+i)^n  (\$1000) / ( 1+ 0.3) ( 1+ 0.3) PV= \$942.60

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