TVOM LECTURE

4. Present value Finding a present value is the reverse of finding a future value.   A.           is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future.   B. Which of the following investments that pay will $17,500 in 8 years will have a lower price today?   The security that earns an interest rate of 4.00%.   The security that earns an interest rate of 6.00%.     C. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 5.40%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price?   An investment that matures in four years   An investment that matures in five years     D. Which of the following is true about present value calculations?   Other things remaining equal, the…

4. Present value Finding a present value is the reverse of finding a future value.   A.           is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future.   B. Which of the following investments that pay will $17,500 in 8 years will have a lower price today?   The security that earns an interest rate of 4.00%.   The security that earns an interest rate of 6.00%.     C. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 5.40%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price?   An investment that matures in four years   An investment that matures in five years     D. Which of the following is true about present value calculations?   Other things remaining equal, the…

Match the terms to the description Time Value of Money (TVM) Discounting Present Value (PV) Future Value (FV) Cash Flow (CF) ✓ [Choose ] value of money at some later time funds in a secure investment will increase to an equivalent future amount the potential lost benefit when choosing one alternative over another transferring money into our out of an account calculating the present value of future cash flow stream value of money right now [Choose ] [Choose ] [Choose ]

Value UI T IUF WHich PW(1)c PW (1)p? 10. Investments A and B have the net cash flows given. End of year 1 4. $ 75 $ 75 $150 А -$250 -$250 $175 $ 75 $150 $ 75 В $150 Compare the present worth of A with the present worth of B for an in- terest rate of 5%. Which has the higher value? Answer: A If the interest rate is 15%, which has the higher value? Answer: B а. b. On the same axis, graph the present worth of each investment as a func- tion of the interest rate. с.

3. Future value The principal of the time value of money is probably the single most important concept in financial management. One of the most frequently encountered applications involves the calculation of a future value. The process for converting present values into future values is called four time-value-of-money variables. Which of the following is not one of these variables? The trend between the present and future values of an investment The duration of the deposit (N) The interest rate (t) that could be earned by deposited funds The present value (PV) of the amount deposited This process requires knowledge of the values of three of 4

What do you understand by the present value of money? Group of answer choices A. Amount borrowed or deposited B. Maximum that can be deposited C. Sum of deposit and interest D. Another name for the future

Tasks/ calculation these questions are :- by 6 functions are : 1. Accumulative (future) money value 1/ Simple interest  FV=PV*(1+* ? *N) 2/ Aggregate interest FV=PV (1+ ? )N 2. Present money value  PV = FV * ^note N- total times of getting income^ R= ?????? ??? / N    n- frequency of income generation per year 3. Present payment value PV = PMT *   4. Future payment value (PMT)  FV = PMT * 5. Amortization payment  PMT = PV * 6. Solatium fond factor (SFF)  PMT = FV * Q1/ The investor wants to invest in the purchase of an office building. He suggests he can rent it out for 10 years at an annual rent of 1,850,000. At the end of the tenth year it is expected to sell the company for 18 million d.e. Income rate 20% What is the current value of the building?

Question 12 Which of the following methods does not adjust for the time value of money: A internal rate of return B net present value C profitability index D payback period

Asset M Asset N j P?? Return, ??   P?? Return, ??   1   0.25   10%     0.15   10% 2 0.25 -6%   0.30 8% 3 0.15 2%   0.20 15% 4 0.20 5%   0.05 0% 5 0.15 20%   0.30 -2% Calculate the expected value of return, ?̅, for each of the two assets. Which provides the largest expected return? Calculate the standard deviation, ?? , for each of the two assets’ returns. Which appears to have the greatest risk? Calculate the portfolio expected return if you invest 27% of your wealth in M and 73% inN, of your total wealth of $40,000.

Question # 4 A Report a Problem GRevisit Choose the best option Indicates the current value of future cash flow over a fixed period of time at a O Present value specified rate of return. O Future value O Compounded value O Cash value Deepanshu | Support +1 650-924-9221 +918047190917 I metti • Type here to search

Which figure of merit provides an interest rate at which the present value of the future cash flows equals the amount invested? a) NPV b) IRR c) Cap Rate d) DCF   Please ensure accuracy and explain your choice

A. Assume that the variables I, N, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively. Which equation best represents the calculation of a future value (FV) using: Compound interest?   FV = (1 + I)NN / PV   FV = PV / (1 + I)NN   FV = PV x (1 + I)NN     B. Simple interest?   FV = PV + (PV x I x N)   FV = PV - (PV x I x N)   FV = PV / (PV x I x N)     C. Identify whether the following statements about the simple and compound interest methods are true or false. Statement True False After the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on simple interest.       All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound…

Rate of interest = 10% Present its feasibility using 1. Rate or Return Method 2. Annual Worth Method 3. Present Worth Method 4. Future Worth Method 5. Payback Method All method should be presented with the cash flow diagram

2. Future value The principal of the time value of money is probably the single most important concept in financial management. One of the most frequently encountered applications involves the calculation of a future value. The process for converting present values into future values is called    . This process requires knowledge of the values of three of four time-value-of-money variables. Which of the following is not one of these variables? The interest rate (I) that could be earned by deposited funds   The trend between the present and future values of an investment   The duration of the deposit (N)   The present value (PV) of the amount deposited     All other things being equal, the numerical difference between a present and a future value corresponds to the amount of interest earned during the deposit or investment period. Each line on the following graph corresponds to an interest rate: 0%, 9%, or 17%. Identify the interest rate that corresponds…

Determine the ERR (External rate of return) of the cash flows if external rate (e) is given as %12. Cash Flow Year 0 1 2 3 4 5 6 7 Select one: a.0.228861 b.0.204146 c.0.245007 d.0.274516 e.0.181262 f.0.168017 g.0.19667 h.0.264278 -5000 2000 4000 -1500 3000 4000 -6000 9000

Q2: Uneven Cash Flow Stream: Year Cash Stream A Cash Stream B 1 100 400 300 2 400 3 400 400 4 300 400 300 100 a) Find the PV of the following cash flow streams. The interest rate is 8 percent. (Hint: use multiple steps method as done in class) b. What is the present value of each cash flow stream (A and B) at a 0 per cent interest rate?

Single Cash Flow Future Value Inputs Single Cash Flow Discount Rate/Period 747.25 6.00% Number of Periods Future Value using a Time Line Period 2 3 4 Cash Flows Future Value of Each Cash Flow Future Value Future Value using the Formula Future Value Future Value using the FV Function Future Value

Consider the following timeline: Date 0 i + $500 2 OA. $666. B. $605. C. $500. OD. $650. 3 Cash flow If the current market rate of interest is 10%, then the future value of the cash flows on this timeline is closest to:

2. Present value Aa Aa Finding a present value is the reverse of finding a future value. Which of the following is true about finding the present value of cash flows? O Finding the present value of cash flows tells you what a cash flow will be worth in future years at a specified rate of return. O Finding the present value of cash flows tells you how much you need to invest today so that it grows to a given future amount at a specified rate of return. Which of the following investments that pay will $13,500 in 13 years will have a higher price today? The security that earns an interest rate of 7.00%. The security that earns an interest rate of 10.50%. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 12.40%. Assuming that both investments have equal risk and Eric's investment time horizon is flexible, which of the following investment options will exhibit the lower price? O An investment…

1. 1: Time Value of Money: Introduction A dollar in hand today is worth -Select- ✓a dollar to be received in the future because if you had it now you could invest that dollar and Select- interest. Of all the techniques used in finance, none is more important than the concept of time value of money (TVM), also called -Select- analysis. Time value analysis has many applications including retirement planning, stock and bond valuation, loan amortization and capital budgeting analysis. Time value of money uses the concept of compound interest rather than simple interest.

Classify the type of financial formula for the information given. Lump-Sum Problems P A known unknown O future value O present value O ordinary annuity O amortization O sinking fund Need Help? Read It

Chapter 10 Homework Questions 1. Explain why money has a time value. 2. What is the difference between simple interest and compound interest? 3. Explain the Rule of 72. 4. What is the meaning of present value (PV)? 5. What do we mean by internal rate of return (IRR)

Consider the following cash flows and interest rates: 0 r = 2.5% 1 r = 1.5% 5,000 2 r = 1.9% 5,000 3 r = 2.4% 5,000 a. Calculate the present value of these cash flows (at time 0). b. Calculate the future value of these cash flows (at time 4). 4

Select all of the time value of money factors that are known in a NPV assessment. O Present value of single-sums O Present value of annuities O Interest rate Number of periods O Future value of single-sums O Future value of annuities

Consider the following timeline: Date Cash flow 0 ? 1 OA. $472 B. $944 C. $600 D. $614 $100 2 $200 3 $300 If the current market rate of interest is 11%, then the present value (PV) of this timeline as of year 0 is closest to:

,Match the following terms with the appropriate definition.Effective yield or interest rateMonetary liabilityCompound interestPresent ValueFuture value of a single amountA.Fixed obligation to pay an amount in cash.B.The rate at which money will actually grow.C.Interest accumulates on interest.D.Current worth of future cash flows.E.The money to which an amount invested will grow over time.