Week 5 Notes FIN 305
Week 5 Notes FIN 305 FIN 305
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This 2 page Class Notes was uploaded by Alia Coughlan on Friday September 23, 2016. The Class Notes belongs to FIN 305 at Colorado State University taught by John D. Hopkins in Fall 2016. Since its upload, it has received 5 views. For similar materials see Fundamentals of Finance in Business at Colorado State University.
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Date Created: 09/23/16
Week 5 Notes for FIN 305 9/19 Review for Exam 1 9/21 Exam 1 9/23 Begin Chapter 8 Time Value of Money Money grows over time when it earns interest Money that is received in the future is less than money received today Debt to be paid in future is less burdensome then debt to be paid now Ceteris Paribas (everything else constant) More is better than less Now is better than later More now is better than less later *Simple Interest = Earn interest only on original investment *Compound Interest = Earn interest on original investment and on interest earned in prior periods TVM Compounds Always use compound returns BUT, if you take interest and consume it every year, you don’t earn a compound return *Before you begin, make sure your calculator is in 4 decimals 2 , Format, 4 Enter *Also make sure calculator is cleared after every problem 2 , Clear TVM Future Value of a Lump Sum FV = PV (1+ K) ^n FV = Future Value PV = Present Value PMT = Payments I/Y = Interest N = Years/Allotted Time *If N increases, FV increases *If I/Y increases, FV increases *If PV increases, FV increases Present Value of a Single Sum PV = FVn/(1+k)^n Present Value of a Lump Sum = Value today of an amount to be received or paid in the future *If N increases, PV decreases *If I/Y increases, PV decreases *If FV increases, PV increases Annuities Series of equal cash flows spaced evenly over time Ex: you pay your landlord an annuity since our rent is the same amount, paid on same day every month for a year Must be equal and regular Equal amounts Occurring in each period Annuity Due – Beginning of Period Ordinary Annuity – End of Period