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FIN 302 Lecture Notes - Lecture 2: Sign Convention, Decimal Mark, Texas Instruments

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goldfox765
27 Jan 2019
School
U of M
Department
Finance
Course
FIN 302
Professor
Qin Lei

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FIN 302 Lecture 1: Chapter 1

2

FIN 302 Lecture Notes - Lecture 2: Sign Convention, Decimal Mark, Texas Instruments

3

FIN 302 Lecture Notes - Lecture 3: Net Present Value

Document Summary

It means today is worth more than tomorrow. Payments for sacrifice of not using the deposits. How do we decide the fair amount? (cid:1) Fv 2 = pvo * (1 + pr)^2 = 1 * (1 + 100%)^2 = . Interest = fv 2 - pvo = 4 - 1 = (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) Question 1 : how to moving forward by one period. Interest = pvo * pr = * 100% = . Fv 1 = principal + interest = pvo * (1 + pr) = . One week, one month, one quarter, one year, Question 2 : how to moving forward by two period. Fv 2 = fv 1 * (1 + pr) = 2 * (1 + 100%) = . Question 3: how to moving forward by three periods. Fv = future value (later money on a time line)

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Related Questions

CAN SOMEONE LET ME KNOW IF I DID THESE RIGHT?? PLEASE

1. What is the effective rate of interest for an investment paying 18% compounded monthly?

Effective rate of interest= (1+r)^n-1

r= 18% or .18; compounded monthly= 0.18/12

N= no of period ie 12

Effective rate r= (1+.18/12)^12-1

= 0.1956 ie 19.56%

2. If you want to buy a $25,000 car in 5 years, what single amount must you invest now at 10% compounded quarterly to have the money to pay cash?

Fv= PV(1+i)^n

Fv= 25,000 n=5 years so 5*4= 20 periods; r = 10% compounded quarterly ie .10/4

25,000=PV(1+.10/4)^20

25,000= PV (4.10/4)^20

PV= (25,000/1.025)^20

PV=$15,256.77

3. What is the present value of $50,000, 4 years from now at 12% interest compounded monthly?

Fv= Pv (1+r)^n

Fv=50,000; Pv?; n= 4 years compounded monthly ie 48; R= 12% compounded monthly ie .12/12

50,000= PV (1+.12/12)^48

PV=50,000/(1.01)^48

PV=$31,013.02

4. What is the future value of $5,000 in 15 years if you can earn 12% interest compounded semi-annually?

Fv=PV(1+i)^n

Fv=5,000; n=15 years semi annually= 30 periods; I=12% compounded semi annually=.12/2

5,000= PV (1+.12/2)^30

PV=5,000(1.06)^30

PV=$28,717.46

5. What is the future value of $800 deposited annually at 9% interest for 25 years if the deposits are made at the end of the period? And, if the deposits are made at the beginning of the period?

FV(end)= PMT[(1+i)^n-1)/i] (Ordinary annuity)

FV= $800; i=9% or .09; n=25 years

Fv+800[(1+0.09)^25-1)/0.09

FV=$67,760.72

FV=(beginning)= PMT[((1+i)^n-1)/i](1+r)

FV=$800; I=9% or 0.09; n=25 years

FV=800[(1+0.09)^25-1)/0.09)(1+0.09)

FV=$73,859.18

6. Using the information from the previous problem, how much more interest is earned from the annuity due than from the ordinary annuity?

Annuity due= annuity (beginning) - ordinary annuity

=$73,859.18-$67,760.72= $6,098.46

7. How much must be deposited now in order to withdraw $15,000 at the end of each year for 30 years, if interest is 11% compounded annually?

Annuity the end of each year= 15,000

N=30 years; r= 11% compounded annually

To find PV of an annuity of $15,000 @ the end of each of the year

PV= PMT [1-(I+i)^-n/i

PV=15,000[1-(I+0.11)^-30/0.11]

PV= PMT[1-(I+i)^-n/i

=$130,406.89

8. If you want $2,000,000 in your retirement fund in 45 years, and you can earn 14% compounded annually, what will be your annual contribution? How much interest will you earn?

FV= 2,000,000; N= 45 years; i= 14% compounded annually

We have the FV of an annuity – to find the annuity

FV= PMT [(I+i)^n-1)/i]

2,000,000=PMT [((1+0.14)^45-1)/(0.14]

2,000,000= PMT [2590.5648]

PMT=$772.03

9. If you retire with $1,375,000 in your retirement fund and plan to live for 20 years, how much can you withdraw every year if your investment earns 10%?

PV= 1,375,000 n=20 years i=10%

To find annuity given the PV

PV=PMT [1-(1+i)^-n/I]

1,375,000= PMT [1-(1+0.10)^-20/0.10)

PMT(yearly withdrawl) =$161,506.98

10. How much more interest is earned from ordinary annuity payments of $6,000 per year for 25 years if you can increase your rate of interest from 6% to 9%?

PMT=$6,000 per year; n=25 years; i=6% to 9%

Interest at 6%

FV= PMT [((1+r)^25-1)/0.06]

FV= 6,000[((1+0.06)^25-1)/0.06]

=$329,187.07

Interest at 9%

FV=6,000[(91+0.09)25-1)/0.09]

= $508,205.38

More earned interest 9%- 6% = $508,209.38 - $329,187.07 = $179,018.31

I. Fill in the blank using a number of terms listed below (@1 point). Annuity due, Asset Mgmt ratio, Call, Comparisons, Comparative ratio analysis, Corporation, Covered, Current Ratio, DSO, Du Pont Equation , Equal, Future performance, Greater, Higher, In-the-money, Less, Liquidity, Lower, Option, Ordinary Annuity, Out-of-the-money, Percentage, Perpetuity, Put, PV, Quick, Reduced, TIE, TATO, Trend Analysis, Writer 11. The payment or receipt of equal amounts, at the end of a series of equal periods, for a specified amount of time is called a(n) _______________. 12. When a loan is amortized over a five year term, the amount of interest paid is ________________ each year. 13. You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000. What will happen to the present value of your winnings if the interest rate increases? It will be worth _________________. 14. The more frequent the compounding the _________________ the effective interest rate. 15. More frequent compounding results in _______________ future values and _______________ present values than less frequent compounding at the same nominal interest rate. 16. A(n) _______________ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever). 17. A(n) _________________ is a contract which gives its holder the right to buy(or sell) an asset at some predetermined price within a specified period of time. 18. The seller of an option is called the option __________________. 19. An investor who writes call options against stock held in his or her portfolio is said to be selling _______________ options. 20. When the exercise price exceeds the current stock price, a call option is said to be _____________________; however, when the exercise price is less than the current price of the underlying stock, a call option is _________________. 21. An option which gives you the right to sell a stock at a specified price within some future period is called a(n) ______________ option.

Have you ever walked into a Wal-Mart or other big box store and been greeted by an older person who probably should have retired a decade ago? We all have at some time or another, and most of us think that when we're that age, we want to be taking vacations and spoiling our grand kids, not handing people shopping carts! Heck, none of us really -want to have to work during retirement. It's okay if you choose to work during retirement so that you have a reason to get up in the morning, but it should be your choice to do so.

Want to get rich? Use the power of compound interest working in your favor. A little bit of money invested well over a long period of time can equate to a lot of money! It's really a simple concept, but so many people fail to make use of the amazing power of compound interest. You can be very wealthy at retirement if you just put a relatively small amount of money away for retirement in a solid investment for a long period of time.

If you're under the age of 30, you can retire with a million dollars by age 65 by putting away a lot less money than you think! You'll need to put it in a solid investment account maybe a 401K- You just have to do the research and find a account at your work.. If you're really young, say age 20, you would only need to deposit very little into a good 401k to be a millionaire upon retirement.



You'll have to go find a savings calculator to figure out how much a month you need to put away to be a millionaire at retirement, but chances are it's a lot less money than you might think. Go to ANY OTHER FINANCIAL CALCULATOR. Please note two important things! 1) You must start as young as possible and 2) the return on your investment (percentage gain each year) makes an incredible difference in how you do. Someone who just puts money in CD's may average a 2% return and it would take much more money. If you get a professional broker or educate yourself, you should be able to get the traditional 7-8% return on your investments that someone using professional can usually get . This is why I always tell people to get the best advice they can through a professional broker as young as they can!

Your discussion is to tell me how much you should start investing now each month to have a cool million by retirement.


Make use of the power of compound interest in your financial life rather than letting the bank use compound interest against you through credit cards, mortgages and automobile loans. Compound interest is an amazing tool if you put away a percentage of your income away for retirement. When retirement occurs, you could do just about anything that you ever wanted--- just let it work for you and not somebody else.