This document discusses concepts related to present value calculations including perpetuities, annuities, and uneven cash flows. It provides examples of calculating the present value of cash flows discounted at different rates as well as future value calculations. The document also discusses growing annuities and uses an example to calculate the maximum constant real annual payment from an investment of $1 million over 20 years with a 5% inflation rate and 10% expected return.
Assignment for my macroeconomics class covering fiancial markets, financial intermediaries & institutions, the federal government deficit as well as time value money concepts.
Will bank loans increase, or decrease? Will this stop the recovery in its tracks. Fed at moment is "puchasing" $85 bn in assets from banking system as traditional monetray policy is in "liquidity trap".
Demystifying Mortgages - It's a Money ThingTim McAlpine
It’s a Money Thing is a collection of effective and affordable financial education content designed to engage and teach young adults while setting your credit union apart. These presentations and other elements are all customizable with your credit union's logo. Check out Currency Marketing at currencymarketing.ca/money-thing for more information.
Real Estate Opportunity 2010...Outlines the current economic situation and what 2010 may bring for the real estate market. SRM's research shows that iIn select markets there will be many options for creative investors.
Assignment for my macroeconomics class covering fiancial markets, financial intermediaries & institutions, the federal government deficit as well as time value money concepts.
Will bank loans increase, or decrease? Will this stop the recovery in its tracks. Fed at moment is "puchasing" $85 bn in assets from banking system as traditional monetray policy is in "liquidity trap".
Demystifying Mortgages - It's a Money ThingTim McAlpine
It’s a Money Thing is a collection of effective and affordable financial education content designed to engage and teach young adults while setting your credit union apart. These presentations and other elements are all customizable with your credit union's logo. Check out Currency Marketing at currencymarketing.ca/money-thing for more information.
Real Estate Opportunity 2010...Outlines the current economic situation and what 2010 may bring for the real estate market. SRM's research shows that iIn select markets there will be many options for creative investors.
TME Pricing Strategies for Mobile Broadband ServicesCapgemini
Innovative mobile broadband services pricing strategies for telcos
As portable devices and social networking services become more widespread, telcos have the opportunity to improve their customer engagement by developing end-to-end digital sales and service strategies. But that requires a full transformation of systems and business operations. Robust analysis tools will play a key role, with growing volumes of valuable data on the behavioral and demographic patterns of customers.
A successful digital transformation, including network-facing operations, will lead to better customer relationships, new revenue streams, and more streamlined processes. This whitepaper examines how operators can fully exploit digital channels and business analytics tools, outlining the benefits as well as the key challenges they face.
Belgian startup scene is booming
Belgium is not just the country of waffles, chocolates, beer and smurfs. It has a thriving startup scene too.
Brussels, both the capital of Belgium and Europe, is hosting the lion share of Belgian startups: a whopping 33% of all startups are based there.
Startups in Belgium are mainly B2B oriented (72%), it’s the opposite of Silicon Valley where B2C startups dominate with a ratio of 2:1. There is a reason for it: location. If you would take a radius of 500 km around Brussels, you will find the highest diversity in industrial capabilities and know how in the world. It also explains why manufacturing focused startups are the second biggest vertical in the industry ranking.
1/3 of the Belgian startups are in a scaling stage, but with only € 100M of VC investment last year, there is still a long way to go. Despite the finance gap, the startup ecosystem is accelerating as of 2010. More startups are created in the last 4 years than in the previous 40 years.
10% of Belgian startups have a foreign branch, given that it’s a small multilingual market, this is not a surprise. The popular destination is the USA, with 31% of all foreign branches, followed by the neighboring countries France, Netherlands, UK and Luxembourg. Surprisingly, neighboring manufacturing powerhouse Germany didn’t make it to the top 5.
Lastly, 9% of startups started their life as an university spin-off. Given the enormous amount of public money that is invested in (technology) research this is a rather low output. Once again it confirms the European paradox: great science but the translation of knowledge into marketable innovations is poor.
Pricing Analytics: Segmenting Customers To Maximize RevenueMichael Lamont
Potential customers for a product or service can be segmented into valuation groups. High valuation groups are willing to pay more for the product or service, while low valuation groups are only willing to pay a lesser amount for the same product or service. This presentation provides a basic background on yield management through customer segmentation, and a hands-on example of modeling airline customer segmentation using Excel.
Delivered this presentation at the Informa's Pricing Mobile Broadband conference 26 & 27th August 2012 in London. While some of the slides are similar to the ones in my Mind Share document you will find new slides and re-worked material giving another twist to Right Pricing Mobile Broadband. Enjoy and should you have any questions/comments just get in touch! Don't be a stranger!
The TCP/IP protocol system is used by virtually every modern data network to quickly and reliably move data from node to node. This presentation covers what TCP/IP is, what it does, it’s most important features, and how it was developed.
I facilitated a discussion on "Right pricing LTE … ." @ Informa's Mind Share sessions at LTE World Summit, 22th May 2012, Barcelona, Spain. I should emphasize that this presentation really is a Technologist's view on mobile data pricing and not that of a Pricing Professional (whatever that might mean) responsible for pricing today's (maybe even tomorrows) mobile data products.
The “best” price for a product or service is one that maximizes profits, not necessarily the price that sells the most units. This presentation uses real-world examples to explore how Excel’s Solver functionality can be used to calculate the optimal price for any product or service.
Management of funds is a critical aspect of financial management. Management of funds acts as the foremost concern whether it is in a business undertaking or in an educational institution. Financial management, which is simply meant dealing with management of money matters.
Financial Management is efficient use of economic resources namely capital funds. Financial management is concerned with the managerial decisions that result in the acquisition and financing of short term and long term credits for the firm. Here it deals with the situations that require selection of specific assets, or a combination of assets and the selection of specific problem of size and growth of an enterprise. Herein the analysis deals with the expected inflows and outflows of funds and their effect on managerial objectives. In short, Financial Management deals with Procurement of funds and their effective utilization in the business.Management of funds is a critical aspect of financial management. Management of funds acts as the foremost concern whether it is in a business undertaking or in an educational institution. Financial management, which is simply meant dealing with management of money matters.
Financial Management is efficient use of economic resources namely capital funds. Financial management is concerned with the managerial decisions that result in the acquisition and financing of short term and long term credits for the firm. Here it deals with the situations that require selection of specific assets, or a combination of assets and the selection of specific problem of size and growth of an enterprise. Herein the analysis deals with the expected inflows and outflows of funds and their effect on managerial objectives. In short, Financial Management deals with Procurement of funds and their effective utilization in the business.
Management of funds is a critical aspect of financial management. Management of funds acts as the foremost concern whether it is in a business undertaking or in an educational institution. Financial management, which is simply meant dealing with management of money matters.
Financial Management is efficient use of economic resources namely capital funds. Financial management is concerned with the managerial decisions that result in the acquisition and financing of short term and long term credits for the firm. Here it deals with the situations that require selection of specific assets, or a combination of assets and the selection of specific problem of size and growth of an enterprise. Herein the analysis deals with the expected inflows and outflows of funds and their effect on managerial objectives. In short, Financial Management deals with Procurement of funds and their effective utilization in the business.
Management of funds is a critical aspect of financial management. Management of funds acts as the foremost concern whether it is in a business undertaking or in an educational institution. Financial management, Management of fund
Michael CobbProfessor Michael LoizidesMKT-325 Critique11 De.docxannandleola
Michael Cobb
Professor: Michael Loizides
MKT-325 Critique
11 December 2015
Time Value of Money
Cash accessible at present value was worth more than the same sum later on because of its potential gaining limit (Kimmel & Weygandt, 2007). This center guideline of account holds that, if cash can procure interest, any measure of cash is worth more the sooner it is gotten.
Present Value Basics
On the off chance that you got $10,000 today, the present value quality would obviously be $10,000 in light of the fact that present value worth is the thing that your venture gives you now if you somehow managed to spend it today. If $10,000 were to be gotten in a year, the present estimation of the sum would not be $10,000 because you don't have it in your grasp now, in the present. To locate the present estimation of the $10,000 you will get later on, you have to imagine that the $10,000 is the aggregate future estimation of a sum that you contributed today (Elliot & Elliott 2008). As such, to locate the present estimation without bounds $10,000, we have to figure out the amount we would need to put in today keeping in mind the end goal to get that $10,000 later on.
To figure present value quality or the sum that we would need to contribute today, you must subtract the (theoretical) collected enthusiasm from the $10,000. To accomplish this, we can rebate the future installment sum ($10,000) by the loan fee for the period. All you are doing is revising the future quality comparison above so you may settle for P. We should walk in reverse from the $10,000 offered in Option B. Keep in mind; the $10,000 to be gotten in three years is truly the same as the future estimation of a speculation. On the off chance that today we were at the two-year point, we would rebate the installment back one year. At the two-year point, the present estimation of the $10,000 to be gotten in one year is spoken to as the accompanying:
Present estimation of future installment of $10,000 at end of year two:
Note that if today we were at the one-year point, the above $9,569.38 would be viewed as the future estimation of our speculation one year from now.
In a regular case, the variables may be equalization (the genuine or ostensible estimation of an obligation or a money related resource regarding fiscal units), an occasional rate of interest, the quantity of periods, and a progression of money streams (Kimmel & Weygandt, 2007). (On account of an obligation, money streams are installments against foremost and enthusiasm; on account of a budgetary resource, these are commitments to or withdrawals from the equalization.) More, for the most part, the money streams may not be intermittent but rather may be indicated independently (Elliot & Elliott 2008). Any of the variables may be the independent variable (the looked for an answer) in a given issue. For instance, one may realize that: the hobby is 0.5% for every period (every month, say); the quantity of periods is 60 (months); th ...
WACC ExampleA firm is considering a new project which would b.docxmelbruce90096
WACC Example:
A firm is considering a new project which would be similar in terms of risk to its existing projects. The firm needs a discount rate for evaluation purposes. The firm has enough cash on hand to provide the necessary equity financing for the project. Also, the firm:
· has 1,000,000 common shares outstanding
· current price $11.25 per share
· next year’s dividend expected to be $1 per share
· firm estimates dividends will grow at 5% per year after that
· flotation costs for new shares would be $0.10 per share
· has 150,000 preferred shares outstanding
· current price is $9.50 per share
· dividend is $0.95 per share
· if new preferred are issued, they must be sold at 5% less than the current market price (to ensure they sell) and involve direct flotation costs of $0.25 per share
· has a total of $10,000,000 (par value) in debt outstanding. The debt is in the form of bonds with 10 years left to maturity. They pay annual coupons at a coupon rate of 11.3%. Currently, the bonds sell at 106% of par value. Flotation costs for new bonds would equal 6% of par value.
The firm’s tax rate is 40%. What is the appropriate discount rate for the new project?
Solution
:
Market value of common = 11.25(1000000) =
$11,250,000
Market value of preferred = 9.50(150000) =
$1,425,000
Market value of debt = 10000000(1.06) =
$10,600,000
Total value of firm =
$23,275,000
Cost of common:
(Note: floatation costs ignored for common equity because cash on hand is enough to finance the project.)
1389
.
0
05
.
0
25
.
11
1
g
P
Div
r
1
=
+
=
+
=
Cost of preferred:
1083
.
0
25
.
0
)
05
.
0
1
(
50
.
9
95
.
0
P
net
Div
r
=
-
-
=
=
Cost of debt:
Net price = 106% - 6% = 100% of par value
Net price = par
Therefore, cost of debt = coupon rate
r = 11.3%
Therefore:
(
)
(
)
(
)
(
)
%
46
.
10
1046
.
0
4
.
0
1
113
.
0
23275000
10600000
1083
.
0
23275000
1425000
1389
.
0
23275000
11250000
WACC
=
=
-
÷
ø
ö
ç
è
æ
+
÷
ø
ö
ç
è
æ
+
÷
ø
ö
ç
è
æ
=
_1258260756.unknown
_1258260980.unknown
_1258260729.unknown
Corporate Finance
Objectives of the Course
On successful completion of this course, you should be able to:
Identify the purpose and relevance of Corporate Finance;
Explain the use of a variety of advance capital budgeting techniques;
Discuss the importance of risk and return in Corporate Finance;
Discuss the process determining the capital structure and dividend policy;
Apply financial derivatives in risk management; and
Discuss factors that affect shareholders’ wealth.
Topic 1: Value and Capital Budgeting
Net Present Value
How to Value Bonds and Stocks
Some Alternative Investment Rules
Net Present Value and Capital Budgeting
Risk Analysis, Options and Capital Budgeting
Topic 2: Risk and Return
Capital Market Theory: An Overview
Return & Risk: The Capital Asset Pricing Model (CAPM)
An Alternate View of Risk and Return: The Arbitrage Pricing Theory
Risk, Cost of Capital, and Capital.
This book is published by RBI for Financial Awareness. It's for readers to understand everything about finance from Banking, Loans, Inflation, Investing, Mis-selling etc. Usually all these concepts are not taught in schools and so people make many financial mistakes in life which have long term effects on there wealth and health.
Many graduates and post graduates are ignorant about basic banking knowledge. Share with kids so they become aware of the financial concepts at an early age.
BONDS, FEATURES OF BONDS, BOND VALUATION, MEASURING YIELD, ASSESSING RISK, TYPES OF LONG- TERM DEBT INSTRUMENTS, SERIAL BONDS, TYPES OF RISK, SEMI- ANNUAL BONDS, YIELD TO CALL, YIELD TO MATURITY, DEFAULT RISK & FACTORS AFFECTING DEFAULT RISK & BOND RATINGS, etc.
Alot of printing presses facing problem due to stages in production process, and there are so many kinds of identical item to produce. so they can sort out their costing problem by using this sheet and develop ERP as per their needs
Income statement Functional Format,Linear cost Function,Method of Analyzing cost,Comparison of variable costing , unit cost computation, Illustration of variable costing , evaluation of results. Managerial Accounting
Future value , Compounding , Present value Discounting , Future value Annuity, ordinary annuity, Annuities due, Present value ordinary annuity , Annuities Due,, Solving for interest Rate, number of periods or payment
Type of Production: Homogeneous
Firm using it : Chemical, Oil,flour, Plastic and paint,
Focal Point: Processing Center,,
Control Document :Cost of Production Report,
Reporting period: Time period such as month,
Unit cost computation:by processing center
Flow of products:continuous,
Measurement of Output: Equivalent Unit of Production.
Interest-rate risk substantially affect the values of the assets and liabilities of most corporations and is often a dominant factor affecting the values of pension funds, banks and many other financial intermediaries.
The market-oriented economies and the global market place have enhanced the competition for funds and market share thereby cutting down the spreads of the banks, a part from declining spread, banks are also witnessing a faster growth in their expenses when compared to their revenues predominant in these expenses are the raising salary expenses and loan-loss expenses. banks are responding by introducing new product lines and developing the existing services into more sophisticated ones,in order to offset the rising expenses
BMA Asset Management Company Limited (BMA FUNDS) established in 1992 is a Non Banking Finance Company (NBFC) and a wholly owned subsidiary of BMA Capital Management Limited. The firm is an approved Investment Advisor and Asset Manager by the Securities and Exchange Commission of Pakistan (SECP) with a proven track record and intimate knowledge of Pakistan's capital markets over the past 15 years. BMA Capital is the parent company of BMA FUNDS and a leading investment firm involved in the domestic capital markets, investment banking, asset management and private equity. In June 2004, BMA entered into a joint venture with Abraaj Capital, the leading private equity firm in the Middle East and have launched Pakistan's first private equity fund of US $300 million for inward investment in Pakistan.
More from Sumaira Sultana Talpur (MBA Finance) (20)
Premium MEAN Stack Development Solutions for Modern BusinessesSynapseIndia
Stay ahead of the curve with our premium MEAN Stack Development Solutions. Our expert developers utilize MongoDB, Express.js, AngularJS, and Node.js to create modern and responsive web applications. Trust us for cutting-edge solutions that drive your business growth and success.
Know more: https://www.synapseindia.com/technology/mean-stack-development-company.html
What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
Explore our most comprehensive guide on lookback analysis at SafePaaS, covering access governance and how it can transform modern ERP audits. Browse now!
Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
[Note: This is a partial preview. To download this presentation, visit:
https://www.oeconsulting.com.sg/training-presentations]
Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
LEARNING OBJECTIVES
1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
CONTENTS
1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
Affordable Stationery Printing Services in Jaipur | Navpack n PrintNavpack & Print
Looking for professional printing services in Jaipur? Navpack n Print offers high-quality and affordable stationery printing for all your business needs. Stand out with custom stationery designs and fast turnaround times. Contact us today for a quote!
Unveiling the Secrets How Does Generative AI Work.pdfSam H
At its core, generative artificial intelligence relies on the concept of generative models, which serve as engines that churn out entirely new data resembling their training data. It is like a sculptor who has studied so many forms found in nature and then uses this knowledge to create sculptures from his imagination that have never been seen before anywhere else. If taken to cyberspace, gans work almost the same way.
Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
RMD24 | Debunking the non-endemic revenue myth Marvin Vacquier Droop | First ...BBPMedia1
Marvin neemt je in deze presentatie mee in de voordelen van non-endemic advertising op retail media netwerken. Hij brengt ook de uitdagingen in beeld die de markt op dit moment heeft op het gebied van retail media voor niet-leveranciers.
Retail media wordt gezien als het nieuwe advertising-medium en ook mediabureaus richten massaal retail media-afdelingen op. Merken die niet in de betreffende winkel liggen staan ook nog niet in de rij om op de retail media netwerken te adverteren. Marvin belicht de uitdagingen die er zijn om echt aansluiting te vinden op die markt van non-endemic advertising.
"𝑩𝑬𝑮𝑼𝑵 𝑾𝑰𝑻𝑯 𝑻𝑱 𝑰𝑺 𝑯𝑨𝑳𝑭 𝑫𝑶𝑵𝑬"
𝐓𝐉 𝐂𝐨𝐦𝐬 (𝐓𝐉 𝐂𝐨𝐦𝐦𝐮𝐧𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
𝐓𝐉 𝐂𝐨𝐦𝐬 provides unlimited package services including such as Event organizing, Event planning, Event production, Manpower, PR marketing, Design 2D/3D, VIP protocols, Interpreter agency, etc.
Sports events - Golf competitions/billiards competitions/company sports events: dynamic and challenging
⭐ 𝐅𝐞𝐚𝐭𝐮𝐫𝐞𝐝 𝐩𝐫𝐨𝐣𝐞𝐜𝐭𝐬:
➢ 2024 BAEKHYUN [Lonsdaleite] IN HO CHI MINH
➢ SUPER JUNIOR-L.S.S. THE SHOW : Th3ee Guys in HO CHI MINH
➢FreenBecky 1st Fan Meeting in Vietnam
➢CHILDREN ART EXHIBITION 2024: BEYOND BARRIERS
➢ WOW K-Music Festival 2023
➢ Winner [CROSS] Tour in HCM
➢ Super Show 9 in HCM with Super Junior
➢ HCMC - Gyeongsangbuk-do Culture and Tourism Festival
➢ Korean Vietnam Partnership - Fair with LG
➢ Korean President visits Samsung Electronics R&D Center
➢ Vietnam Food Expo with Lotte Wellfood
"𝐄𝐯𝐞𝐫𝐲 𝐞𝐯𝐞𝐧𝐭 𝐢𝐬 𝐚 𝐬𝐭𝐨𝐫𝐲, 𝐚 𝐬𝐩𝐞𝐜𝐢𝐚𝐥 𝐣𝐨𝐮𝐫𝐧𝐞𝐲. 𝐖𝐞 𝐚𝐥𝐰𝐚𝐲𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞 𝐭𝐡𝐚𝐭 𝐬𝐡𝐨𝐫𝐭𝐥𝐲 𝐲𝐨𝐮 𝐰𝐢𝐥𝐥 𝐛𝐞 𝐚 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐨𝐮𝐫 𝐬𝐭𝐨𝐫𝐢𝐞𝐬."
Pitch Deck Teardown: RAW Dating App's $3M Angel deck
Time value of money Very important concepts
1. what $100 bond be worth if the opportunity cost rate, or discount rate, was 5%?
$100
0.05
Suppose interest Rate rose to 10 percent, what would happen to the console's value
$100
0.1
We see that the value of a perpetuity changes dramatically when interest rates changes.
$2,000
$1,000
Perpetuity
Most annuities call for payments to be made over some finite period of time-for example $100 per
years .however, some annuities go on indefinitely, or perpetually,and these are called
perpetuities.
PV (Perpetuity) = Payment
Interest Rate
2. Example Common stock typically pay an increasing stream of dividends overtime,
0 6% 1 2 3 4 5 6 7
PV= ? 100 200 200 200 200 0 1000
Description
1-Interest Rate 0.06
2-time 0 1 2 3 4 5 6 7
3-Cash flow 100 200 200 200 200 0 1000
4-Present value $1,413.19
Description
1-Interest Rate 0.06
2-time 0 1 2 3 4 5 6 7
3-Cash flow 100 200 200 200 200 0 1000
4-Future value $2,124.92
Future value of an uneven Cash flow Stream
The Future value of an uneven cash flow stream (sometime called the terminal value) is found by
compounding each payment to the end of the stream and then summing future values
the definition of an annuity inclueds the words constant payment- in other words, annunites involve
payments that are the same in every period.Although many financial decisions do not involve
constatant payments. Other important decision involve uneven ,or noncostant cash flows.
Fixed asset investment such a new equipment normally do not generate constant
cash flows
Uneven Cash Flow Streams
Present value of an uneven Cash flow Stream
The Present value of an uneven cash flow stream is found as the sum of the PVs of the individual cash
flows of the stream. For example, suppose we must find the PV of the following cash flow stream,
discounted as 6%
3. Real rete:
=
Data
N= 20
I= 5
PV= ($1,000,000)
FV= 0
PMT= ?
PMT $80,242.59
.
Thus , Portfolio worth $ 1 Million will provide 20 Annual payments with a current dollar value of $
80242.59 under the stated assumptions. The actual payment will be growing at 5% Per year to offset
inflation. The nominal value of portfolio will be growing at first and then declining and it will hit zero
at the end of 20th year
Growing Annuities
Normally, an annuity is defined as a series of constant payments to be received over a specified number of
periods. However ,the term growing annuity is used to describe a series fo payment that is growing at a
constant rate for a specified number of periods, the most common application of growing annuities is in the
area of Financial planning, where somone wants to maintain a constant real, or inflation adjusted , income
over some specified number of years.
For Example: suppose a 65 year old person is contemplating retirement, expect to live for another 20 years.
Has $ 1 million of investment funds, expect to earn 10% on the investments, expects inflation to average 5%
per year and want to withdraw a constant real amount per year, what is the maximum amount that he or she
can withdraw at the end of each year.
[(1+r)/1+inflation)]-1
5%
4. Example
year
Begning
Amount
Payment Interest
Repayment
of principal
Remaining
balance
1 1000 $374.11 $60.00 $314.11 $685.89
2 $685.89 $374.11 $41.15 $332.96 $352.93
3 $352.93 $374.11 $21.18 $352.93 ($0.00)
$1,122.33 $122.33 $1,000.00
One of the most important application of compound interest involves loans that are paid off in
installments over time,included are automobile loans,home mortgage loans , student loans and most
business loans other than very short-term loans and long term bonds.if a loan is to be repaid in equal
periodic amount (monthly ,quarterly, or annually) it is said to be amortized loan
A firm borrows $ 1000 and the loan is to be repaid in three equal payments at the end of each of the
next three years. (In this case ,there is only one payment per year, so year = periods and the stated
rate=periodic rate). The lender charges 6% interest rate on the loan balance that is outstanding at the
begining of each year.
Loan Amortization Schedule, 6% interest Rate
Amortized Loan