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# Eco 202 ch 27 basic tools of finance

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### Eco 202 ch 27 basic tools of finance

1. 1. Chapter 27Basic Tools of Finance
2. 2. Survey Question 1 What would you prefer?A. Win 1,000 riyalsB. Flip a coin:50 percent chance you win 2,000 riyals50 percent chance you win nothing.
3. 3. Survey Question 2 What would you prefer?A. Lose 1,000 riyalsB. Flip a coin:50 percent chance you lose 2,000 riyals50 percent chance you lose nothing.
4. 4. Payback?One year?Five years?Ten years?
5. 5. Promissory Note I.O. U. 10 SAR Dr. GaleTrading paper for paper
6. 6. FinanceTime and Risk
7. 7. Key Formula 1 Future Value or FV N (1+r)r = rateN = number of periods
8. 8. r = 7% N FVN=3 1 1.070FV =? 2 1.145 3 1.225 N(1+r)
9. 9. r = 10% N FVN=5 1 1.100FV =? 2 1.210 3 1.331 N(1+r) 4 1.464 5 1.611
10. 10. r = 15% N FVN=3 1 1.150FV =? 2 1.323 3 1.521 N(1+r)
11. 11. r = 15% N FVN=3 1 1.150FV =? 2 1.323 3 1.521 N(1+r)
12. 12. Key Formula 2 Present Value or PV 1 Reciprocal of the N (1+r) FV formular = rateN = number of periods
13. 13. r = 7% N PVN=3 1 .935PV =? 2 .873 3 .816 1 N(1+r)
14. 14. r = 10% N PVN=5 1 .909PV =? 2 .826 3 .751 1 4 .683 N(1+r) 5 .621