Ch4 Notes Jan10,2018

Topics 1. Time Value of Money and Discounted Cash Flow

2. Present Value and Future Value

3. Annuity

4. Compound Rates

Calculation PV
FV
Ordinary Annuity
Annuity Due
Perpetuity
Even and Uneven Cash Flows’ PV and FV
NPV
Nominal Rate
Periodic Rate
Compounding Rate
APR
EFF% (EAR)

Questions 1. Why PV is important in financial management? How to calculate PV, FV,

I/Y, PMT, N with your financial calculator (a lump sum)?
-Read textbook P97
2. What’s the difference between Ordinary Annuity, Annuity Due and
Perpetuity? Give some examples in daily life. How to calculate their PVs
and FVs with your financial calculator?
- Read textbook P101-106
3. How to calculate Uneven Cash Flow? Set up a time line first and list all
steps with your financial calculator.
-Read textbook P109-112
4. What is compound rate? How to calculate Nominal Rate and
Effective Rate? Which rate will be a better indicator in your
investment?
- Read book chapter P113-116

Examples PV, FV, I/Y: P123, Problems4-1,2,3,4,9 P125, Problems 4-24,27

Annuity: P123, Problems4-5,6; Problems 124, P-12,13
Uneven Cash Flow and NPV: P123, Problems 4-7; P124 4-14
Compound Rates: P124, Problems 4-15,19, 28 and 36