FIN 3303 1ST Edition Lecture 2 Outline of Last Lecture Calculator Changes Time Value of Money ideology Time Value of Money Practice Problems Outline of Current Lecture Time Value of Money Practice Problems How to solve Time Value of Money problems on a financial calculator Practice problems using financial calculator Annuities and Perpetuity Current Lecture Time Value of Money Practice Problems o You invest 100 for 2 years Interest rate is 12 Compounded monthly FV 100x 1 01 24 o FV 126 97 N 24 because the interest is compounded monthly 24 months in two years R 01 because 12 12months 1 Compounded yearly FV 100x 1 12 2 o FV 125 44 o At what annual rate would 550 have to be invested today in order to grow to 2 142 78 in 12 years 2 142 78 550x 1 r 12 2 142 78 550 1 r 12 3 896 1 r 12 3 896 1 12 1 r 12 1 12 3 8961 12 1 r r 3 8961 12 1 r 12 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 How to solve Time Value of Money problems on a financial calculator o N Time Frame I Y Interest Rate r PV Present Value PMT Payment FV Future Value Previous Problem Solution on calculator o N 12 I Y PV 550 PMT 0 FV 2 142 78 Enter the number then enter what corresponds with it Enter 12 then press N Skip I Y because this is what you are trying to solve for Enter 550 then press PV Enter 0 then PMT Enter 2 142 78 then FV After you have entered all the options press CPT then press I Y All problems can be solved using a financial calculator Practice Problems using Financial Calculator o Leo s grandfather deposited 800 in a savings account for him when he was born The money has been earning a 15 annual interest rate compounded quarterly for the past 15 years He now wants to buy a car How much does he have in this account to use N 60 I Y 3 75 because 15 4 PV 800 PMT 0 FV FV 7 284 Annuities o Equal cash flow stream for certain number of periods o Ex N 4 I Y 10 PV 316 99 PMT 100 if the cash flow is equal you put it in as a PMT FV 0 Perpetuity o Equal cash flow stream infinitely o PV PMT r Ex 100 01 1000