Chapter 27Basic Tools    of Finance
Survey         Question 1    What would you prefer?A. Win 1,000 riyalsB. Flip a coin:50 percent chance you win 2,000 riyal...
Survey         Question 2    What would you prefer?A. Lose 1,000 riyalsB. Flip a coin:50 percent chance you lose 2,000 riy...
Payback?One year?Five years?Ten years?
Promissory Note                 I.O. U.                 10 SAR                 Dr. GaleTrading paper for paper
FinanceTime and Risk
Key Formula 1  Future Value or FV             N         (1+r)r = rateN = number of periods
r = 7%   N   FVN=3      1   1.070FV =?    2   1.145         3   1.225    N(1+r)
r = 10%   N   FVN=5       1   1.100FV =?     2   1.210          3   1.331    N(1+r)     4   1.464          5   1.611
r = 15%   N   FVN=3       1   1.150FV =?     2   1.323          3   1.521    N(1+r)
r = 15%   N   FVN=3       1   1.150FV =?     2   1.323          3   1.521    N(1+r)
Key Formula 2  Present Value or PV           1      Reciprocal                    of the              N        (1+r)     F...
r = 7%    N   PVN=3       1   .935PV =?     2   .873          3   .816  1      N(1+r)
r = 10%   N   PVN=5       1   .909PV =?     2   .826          3   .751  1       4   .683      N(1+r)     5   .621
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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

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