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  • L1 QM01 - Summary 4 (2023)

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    sarthak sanwal
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    This document discusses using a timeline to solve time value of money problems. It provides an example of receiving $150 at the end of years 4, 5, and 6, treating those payments as an annuity to calculate its present value of $373.03 at the end of year 3, and further discounting that amount back to the present value of $280.26 at time 0, using a 10% discount rate.

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    L1 QM01 – Summary 4 (2023)

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    This document discusses using a timeline to solve time value of money problems. It provides an example of receiving $150 at the end of years 4, 5, and 6, treating those payments as an annuity to calculate its present value of $373.03 at the end of year 3, and further discounting that amount back to the present value of $280.26 at time 0, using a 10% discount rate.

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    6 views1 page

    L1 QM01 - Summary 4 (2023)

    Uploaded by

    sarthak sanwal
    This document discusses using a timeline to solve time value of money problems. It provides an example of receiving $150 at the end of years 4, 5, and 6, treating those payments as an annuity to calculate its present value of $373.03 at the end of year 3, and further discounting that amount back to the present value of $280.26 at time 0, using a 10% discount rate.

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    Lecture 4 Summary (1)

    LO.f: Demonstrate the use of a timeline in modeling and solving time value of money problems.
    You can solve time value of money questions by showing cash flows on a timeline such as the one shown
    below:

    Say you will receive $150 at the end of Year 4, Year 5, and Year 6 and you want to calculate the PV at
    time 0. You can treat the three payments as an annuity and calculate the PV at the end of year 3. This
    value, assuming a 10% discount rate, is: $373.03. We can then further discount $373.03 to time 0.
    Plug: FV = $373.03, N = 3, I = 10%, PMT = 0. Compute PV. You should get $280.26.

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