FIN 345 1nd Edition Lecture 13Current LecturePV (present value) n (number of years)i/r (interest rate) PMT (amount of periodic payments) FV (future value)1. Cash flow patternsa. Lump Sumi. Example A: What will $1,000 invested today at 8% be worth in 12 years?1. FV - Calculate future valueii. Example B: You expect to receive $20,000 in 6 years. What is this amount today assuming an interest rate of 5%?1. PV - Calculate present valueiii. You invest $15,000 today for a home down payment. How many years will it take to be worth $20,000 if it earns 7% annually?1. N – number (of years)iv. Example D: You invest $15,000 today for a home down payment. What rate of return will you have to earn for the account to be worth $20,000 in 3 years?1. i/r - Interest rateb. Annuitiesi. Example A: If I save $500 per month what will my account be worth at the end of 7 years if I earn 4% annually? If I earn 7% annually? (84 months = 7 years x 12)1. FVii. Example B: If I want to have $20,000 at the end of 5 years, what amountdo I need to save each month if I earn 6% annually?1. PMT – Paymentiii. Example C: I want to accumulate $20,000 for a home down payment. If Iearn 6% on my investment, how long will it take to reach my goal of $20,000 if I begin saving $500 each month?1. N (of months)iv.c. Uneven Cash FlowsThese 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.2. Worked out example: Suppose you have $1,000 to invest for a period of 5 years at an interest rate of 10% per year. How much will you have accumulated at the end of this time period?a. Use financial calculator i. On TI-84 Calculator, click “apps,” press enter on 1. Finance, press enter on 1.TVM Solver… under CALCii. PV= -1,000iii. N= 5 yearsiv. i/r= 10v. PMT= 0vi. FV= _______ calculated automatically after entering the above informationvii. Answer =
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