Business Finance, Week 4, Chapter 4
Business Finance, Week 4, Chapter 4 13912
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This 1 page Class Notes was uploaded by Naya Rhodes on Tuesday September 20, 2016. The Class Notes belongs to 13912 at Kent State University taught by Daniel Fashimpaur in Fall 2016. Since its upload, it has received 6 views. For similar materials see Business Finance in Finance at Kent State University.
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Date Created: 09/20/16
BusinessFinance Chapter4:IntroductiontoValuation:TheTimeValueofMoney -Somebasicdefinitions: 1. Thecurrentvalueoffuturecashflowsdiscountedattheappropriatediscountratewheret=0 onatimelineiscalledthepresentvalue(PV). PV= ???????? (1+???? )???? Givenr,astincreases,PVdecreases.Givent,asrincreases,PVdecreases. 2. Theamountaninvestmentaccumulatestoafteroneormoreperiodsisthefuturevalue(FV). FV=PV(1+r) t Givenr,astincreases,sodoesFV.Givent,asrincreases,FVincreases. 3. Thecostofcapital,opportunitycostofcapital,istheinterestrate(r).Therearetwotypesof interest;simpleandcompound.Simpleinterestisinterestearnedonlyontheoriginalprincipal whilecompoundistheinterestearnedonprincipalandoninterestreceived.Thelatterisalso knownas“interestoninterest”. ???????? ???? Discountrate=r=[ ] − 1 ???????? 4. Numberofperiods,torN. ????????( ????????) t= ???????? ???????? 1+???? ) -Knowhowtouseafinancialcalculator(BAIIPlusrecommended).TosetvaluesforFV,PV,interestorI/Y,or N:enterthevalueandthenpressthecorrespondingkey.Tocomputeoneofthesevalues:enterinthegiven informationforthecorrespondingkeys,thenpressCPTfollowedbythekeyyouaretryingtocompute.Note: EitherFVorPVhavetobenegativesinceFV=PV(1+r). t -SimilarfunctionsforExcel:(rate=decimal) 1. FV(rate,nper,pmt,pv) 2. PV(rate,nper,pmt,fv) 3. RATE(nper,pmt,pv,fv) 4. NPER(rate,pmt,pv,fv) Chapter4:ReviewQuestions -Whatisthedifferencebetweensimpleandcompoundinterest? -Whatistherelationshipbetweenpresentandfuturevalue? -Whenwouldyouwanttocomputeimpliedinterest?Numberofperiods?
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