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  • Time Value Review Solutions Typed

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    Javan Odeph
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    1) The document discusses various financial concepts including present value, future value, annuities, perpetuities, and net present value calculations. Formulas are provided for calculating these values. 2) Examples are given to demonstrate calculating the present value of a 30-year annuity, a perpetual cash flow, the net present value of a project with quarterly cash flows over 15 years, and using an amortization table to pay off a 3-year loan. 3) Key ideas discussed include applying the appropriate formulas to calculate present and future values based on the timing and duration of cash flows.

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    1) The document discusses various financial concepts including present value, future value, annuities, perpetuities, and net present value calculations. Formulas are provided for calculating these values. 2) Examples are given to demonstrate calculating the present value of a 30-year annuity, a perpetual cash flow, the net present value of a project with quarterly cash flows over 15 years, and using an amortization table to pay off a 3-year loan. 3) Key ideas discussed include applying the appropriate formulas to calculate present and future values based on the timing and duration of cash flows.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    7 views1 page

    Time Value Review Solutions Typed

    Uploaded by

    Javan Odeph
    1) The document discusses various financial concepts including present value, future value, annuities, perpetuities, and net present value calculations. Formulas are provided for calculating these values. 2) Examples are given to demonstrate calculating the present value of a 30-year annuity, a perpetual cash flow, the net present value of a project with quarterly cash flows over 15 years, and using an amortization table to pay off a 3-year loan. 3) Key ideas discussed include applying the appropriate formulas to calculate present and future values based on the timing and duration of cash flows.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 1

    Fv and Pv 105 =100*(1.

    05)
    100 =(105)/(1.05)
    133.1 =100*(1.1)^3
    100 =133.1/(1.1)^3
    75.13 =100/(1.1)^3
    248.69 =((100/0.1)*(1-(1/1.1)^3))
    Note: PV $100 3 years from now ≠ PV of 3 payments of $100, starting next year
    1A 614,898.04 =((40000/0.05)*(1-(1/1.05)^30))
    1B 505,878.14 =((40000/0.05)*(1-(1/1.05)^30))/(1.05^4)
    Note: annuity formula calculates PV of CF that starts next period (t+1)
    Note: draw time line t+1
    1C 87,184.56 =(1000000)*(0.06)/((1-(1/1.06)^20))
    Key idea: apply the annuity formula
    2A 10,000,000.00 =100000/0.01
    2B 8,874,492.25 =100000/0.01/(1.01)^12
    Note: perpetuity calculates PV of CF that starts next period (t+1)
    2C 40,000 =500000*(0.08) 40K interest
    16,000 =40000*0.4 40 percent tax credit
    200,000 =40000*0.4/0.08 8 percent discount rate, perpetual
    3A 122,248,933.77 =((10000000)/(0.12-0.05))*(1-(1.05/1.12)^30)
    3B 41.67 =(2.5)/(0.1-0.04)
    Slide 29 176.23 =100*(1.12)^5 incorrect, semi annual for 5 years
    179.08 =100*(1.06)^(5*2) correct, 6 percent per period, 10 periods total (5*2)
    310.58 =100*(1.12)^(10) incorrect, 12 percent 10 periods (wrong interest rate)
    133.82 =100*(1.06)^(5) incorrect, 6 percent 5 periods (wrong periods)
    4A 67,870,469.92 =(3000000/0.04)*(1-(1/1.04)^(15*4))
    4B 82,730,408.33 =(3000000/(0.04-0.01))*(1-(1.01/1.04)^(15*4))
    Note: 16 percent annual discount rate, but 3M are quarterly cash flows
    Note: 4 percent = 16/4, similarly 60 periods = 15 (years) * 4 (quarters)
    5A CF_0 -15M
    E(CF_1) 2.5 =0.5*(20)+0.5*(-15)
    E(CF_2) 10 =0.5*(30)+0.5*(-10)
    5B NPV -5.26 =-15 + (2.5)/(1.15) +(10)/(1.15)^2
    NPV = -5.26M < 0, project should not be undertaken / do not invest
    Slide 36 402.11 =(1000)*(0.1)/(1-(1/1.1)^3) Amortization table
    100.00 =1000*0.1 Year 1 interest
    697.89 =1000*1.1 - 402.11 Year 1 ending balance, after payment
    365.569 =697.89*(1.1) - 402.11 Year 2 ending balance, after payment
    0.0159 =365.569*(1.1) - 402.11 Year 3 final payment
    Key idea: apply the annuity formula, solve for the cash flow given the PV
    That is, you know the PV of the loan ($1K borrowed today) and the periods
    over which you would like to pay it over (3 years) and the interest rate (10 percent)

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