C0: Role of Managerial Finance
- interest is based on the original amount
Finance
- science and art of managing money
- concerned with the process, institution,
markets, and instrument involved in the
transfer of money among and between
individuals, businesses, and governments
Financial Services
- area of finance concerned with the design
and delivery of advice and financial
product to individual, business, and
governments
Managerial Finance
- concerned with the duties of the financial
manager in the business firm
Financial Manager
- actively manages the financial affairs of
many types of business (financial and non
financial, private and public, large and
small, profit seeking and not for profit)
Responsibilities
 budgeting
 financial forecasting
 cash management
 credit administration
 investment analysis
 funds procurement
C1:
C2: Interest Rates and Bond Valuation
• Time Value of Money
Computational Aids
- equations
- financial tables
- financial calculators
- electronic spreadsheets
Simple Interest
or principal
Compound Interest
- interest is based on any previous interest
earned and principal
Annuities
- series of equally-spaced cash flows,
occurring over a specified number of
period
- can be inflows or outflows
Ordinary Annuity
- cash flows occur at the end of each period
Annuity Due
- cash flows occur at the beginning of each
period
Annuity Due > Ordinary Annuity (PV, FV)
- because interest will be compounded for
an additional period
Present Value of a Perpetuity
- continues forever, providing continual
annual cash flow
Present Value of a Mixed Stream
- different amount earned each period
- use financial calculator (IRR NPV)
Present Value of Deferred Annuity
- will not receive amount for selected
periods
- use financial calculator (IRR NPV)
Effective Annual Rate (EAR)
m = frequency per year
Nominal Interest Rate
- stated or contractual rate of interest
charged by a lender or promised by a
borrower
Effective Interest Rate
- rate actually paid or earned

Effective Rate > Nominal Rate

- whenever compounding occurs more
than once a year