4/7/2021

FINANCE FOR
MANAGERS

2021
PhD. Son Duong Tran - School of Management

TIME VALUE OF MONEY

2021
PhD. Son Duong Tran - School of Management

1
 4/7/2021

The big picture

Finance for managers PhD. S.D. Tran 5 April 2021 3

Contents

3.1 Time value of money

3.2 Future value (FV) and

present value (PV) of money

3.3 Applications

Finance for managers PhD. S.D. Tran 5 April 2021 4

2
 4/7/2021

3.1 Time value of money

#
Today Future

6 April
Finance for managers PhD. S.D. Tran 5
2021

Time Value Terminology

Finance for managers PhD. S.D. Tran 5 April 2021 6

3
 4/7/2021

Compound Interest

Finance for managers PhD. S.D. Tran 5 April 2021 7

Future Value of a Lump Sum

Finance for managers PhD. S.D. Tran 5 April 2021 8

4
 4/7/2021

Frequency of compounding

Solution:…………

Solution:…………

Finance for managers PhD. S.D. Tran 7 April 2021 9

Comparing Rates

Finance for managers PhD. S.D. Tran 6 April 2021 10

5
 4/7/2021

Calculation of EAR

Finance for managers PhD. S.D. Tran 5 April 2021 11

Calculation of EAR

Solution:…………

Finance for managers PhD. S.D. Tran 7 April 2021 12

6
 4/7/2021

Present Value of a Lump Sum

Finance for managers PhD. S.D. Tran 5 April 2021 13

Example

Solution:…………

Finance for managers PhD. S.D. Tran 7 April 2021 14

7
 4/7/2021

Solving for the interest rate or growth rate

Solution:…………

Finance for managers PhD. S.D. Tran 7 April 2021 15

Present value of Multiple Cash Flows

Solution:…………

Finance for managers PhD. S.D. Tran 7 April 2021 16

8
 4/7/2021

Annuities and Perpetuities

• payments are equal • payments occur at • payments are made • an annuity whose
and are made at the end of each at the beginning of promised payments
fixed intervals period each period extend out forever.
• Payments on • Rental lease • A consol (perpetuity
mortgages, car payments, life bond)
loans, and student insurance premiums,
loans and lottery payoffs
Ordinary
Annuity Annuity due Perpetuity
annuity

Finance for managers PhD. S.D. Tran 5 April 2021 17

Annuities and Perpetuities

Finance for managers PhD. S.D. Tran 7 April 2021 18

9
 4/7/2021

Present Value of An Annuity

Finance for managers PhD. S.D. Tran 7 April 2021 19

Present Value of An Annuity

Finance for managers PhD. S.D. Tran 7 April 2021 20

10
 4/7/2021

Example

Solution:…………

Finance for managers PhD. S.D. Tran 7 April 2021 21

Future Value of An Annuity

Finance for managers PhD. S.D. Tran 5 April 2021 22

11
 4/7/2021

Example

Solution:…………

Finance for managers PhD. S.D. Tran 7 April 2021 23

Perpetuities

Finance for managers PhD. S.D. Tran 5 April 2021 24

12
 4/7/2021

Application of Time value of Money

Loan amortization

Installment plan

Personal financial planning

Finance for managers PhD. S.D. Tran 5 April 2021 25

Loan amortization

Finance for managers PhD. S.D. Tran 5 April 2021 26

13
 4/7/2021

Amortization schedule

Excel guide

Finance for managers PhD. S.D. Tran 7 April 2021 27

Installment payment
Instalment payments refer to a customer paying a bill in small portions
throughout a fixed period of time. Excel example

Some • Keeping track of your finances

benefits for • Stretching the cost of a purchase over
the a period of time
customer • Keeping to your budget
are: • Low monthly payments

Some • Allows more flexibility for your

benefits for customers
the business • Will bring in more sales
are: • Regulates cash flow

Finance for managers PhD. S.D. Tran 5 April 2021 28

14
 4/7/2021

Personal Financial Planning

Establish your
financial goal in Choose the
the next 10 feasible/optimal
years plan

List all resources

and develop
plans to invest.
Excel guide

Finance for managers PhD. S.D. Tran 7 April 2021 29

Q&A
THANK YOU
30

15