FIN 3303 1st Edition Lecture 1 Outline of First Lecture Calculator Changes Time Value of Money ideology Time Value of Money Practice Problems Lecture Finance Calculator and Formatting o Financial Calculator Texas Instruments BA II Plus Hewlett Packard 10B Hewlett Packard 12C or private label from office supply stores o Format calculator to 4 decimal places Press 2nd Time Value of Money ideology o Would you rather have 10 000 now or after 1 year Why now Investment Opportunities Inflation Personal Preference Waiting 1 year has too much risk Why Lender could end up backing out not have enough money etc o Receiving 1 now is worth more than receiving 1 in the future Time Value of Money o Suppose you could have either 100 now or 110 one year from now If you take the money now you are able to invest it for 10 Either way you will have 110 at the end of 1 year How much should someone offer to be indifferent Depends on Interest rate Required rate of return Discount rate Time Value of Money Practice Problems o FV PVx 1 r n FV Future Value PV Present Value r interest rate n time o Suppose you deposit 4 000 into an account which pays 8 interest How much will you have after 6 years 4000x 1 08 6 6 347 49 o Suppose you earn 5 000 at the end of four years with an interest rate of 12 What was your initial deposit 5 000 PVx 1 12 4 5000 1 12 4 3 177 6 These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o Suppose you deposit 100 with a 10 interest that is compounded semiannually This means you don t just earn interest after 1 year you earn interest every 6 months 100x 1 05 105 Enter the interest rate as 05 to represent the first 6 months Then take the FV and multiply it by 05 to represent the last 6 months 105x 05 5 25 Add the interest of 5 25 to your future value of 105 105 5 25 110 25 This means that after 1 year you earn 10 25 of interest since it was compounded semiannually Earn interest on top of interest