Slide 1Chapter OutlineChapter Outline (cont’d)Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives4.1 The Timeline4.1 The Timeline (continued)4.1 The Timeline (continued)4.1 The Timeline (cont’d)Textbook Example 4.1Textbook Example 4.1 (cont’d)4.2 Three Rules of Time TravelThe 1st Rule of Time TravelThe 2nd Rule of Time TravelThe 2nd Rule of Time Travel (continued)Using a Financial Calculator: The BasicsUsing a Financial Calculator: The Basics (continued)Using a Financial Calculator: Setting the keysUsing a Financial CalculatorFinancial Calculator SolutionFigure 4.1 The Composition of Interest Over TimeTextbook Example 4.2Textbook Example 4.2 (cont’d)Slide 26Alternative Example 4.2Alternative Example 4.2 (continued)Alternative Example 4.2 Financial Calculator SolutionThe 3rd Rule of Time TravelTextbook Example 4.3Textbook Example 4.3Textbook Example 4.3 Financial Calculator SolutionApplying the Rules of Time TravelApplying the Rules of Time Travel (continued)Applying the Rules of Time Travel (continued)Applying the Rules of Time Travel (continued)Applying the Rules of Time Travel (continued)Table 4.1 The Three Rules of Time TravelTextbook Example 4.4Textbook Example 4.4 (cont’d)Textbook Example 4.4 Financial Calculator SolutionAlternative Example 4.4Alternative Example 4.4 (continued)Alternative Example 4.4 (cont'd)Alternative Example 4.4 (cont'd)4.3 Valuing a Stream of Cash Flows4.3 Valuing a Stream of Cash Flows (continued)Textbook Example 4.5Textbook Example 4.5 (continued)Textbook Example 4.5 Financial Calculator SolutionAlternative Example 4.5Alternative Example 4.5 (cont'd)Future Value of Cash Flow Stream4.4 Calculating the Net Present ValueTextbook Example 4.6Textbook Example 4.6 (cont'd)Textbook Example 4.6 Financial Calculator SolutionAlternative Example 4.6Alternative Example 4.6 (continued)Alternative Example 4.6 Financial Calculator Solution4.5 Perpetuities and Annuities4.5 Perpetuities and Annuities (continued)Textbook Example 4.7Textbook Example 4.7 (continued)Alternative Example 4.7Alternative Example 4.7 (continued)4.5 Perpetuities and Annuities (continued)Present Value of an AnnuityPresent Value of an Annuity (continued)Present Value of an AnnuityTextbook Example 4.8Textbook Example 4.8Textbook Example 4.8 Financial Calculator SolutionTextbook Example 4.8 Financial Calculator Solution (continued)Future Value of an AnnuityTextbook Example 4.9Textbook Example 4.9 (continued)Textbook Example 4.9 Financial Calculator SolutionTextbook Example 4.9 Financial Calculator Solution (continued)Growing Cash FlowsTextbook Example 4.10Textbook Example 4.10 (continued)Alternative Example 4.10Alternative Example 4.10 (cont’d)Growing Cash FlowsTextbook Example 4.11Textbook Example 4.11Alternative Example 4.11Alternative Example 4.11 (continued)4.6 Solving Problems with a Spreadsheet or CalculatorTextbook Example 4.12Textbook Example 4.12 (continued)Textbook Example 4.13Textbook Example 4.13 (continued)4.7 Non-Annual Cash FlowsTextbook Example 4.14Textbook Example 4.14 (continued)4.8 Solving for the Cash Payments4.8 Solving for the Cash PaymentsTextbook Example 4.15Textbook Example 4.15 (continued)4.9 The Internal Rate of ReturnTextbook Example 4.16Textbook Example 4.16 (cont’d)Textbook Example 4.17Textbook Example 4.17 (continued)Slide 108Appendix: Solving for the Number of PeriodsTextbook Example 4A.1Textbook Example 4A.1 (cont’d)Discussion of Data Case Key Topic on p.137Chapter QuizChapter 4The Time Value of MoneyCopyright ©2014 Pearson Education, Inc. All rights reserved.Chapter Outline4.1 The Timeline4.2 The Three Rules of Time Travel4.3 Valuing a Stream of Cash Flows4.4 Calculating the Net Present Value4.5 Perpetuities and AnnuitiesCopyright ©2014 Pearson Education, Inc. All rights reserved.Chapter Outline (cont’d)4.6 Solving Problems with a Spreadsheet or Calculator4.7 Non-Annual Cash Flows4.8 Solving for the Cash Payments4.9 _The Internal Rate of ReturnCopyright ©2014 Pearson Education, Inc. All rights reserved.Learning Objectives1.Draw a timeline illustrating a given set of cash flows.2.List and define three rules of time travel.3.Calculate the future value of:a. A single sum.b. An uneven stream of cash flows, starting either now or sometime in the future.c. An annuity, starting either now or sometime in the future.d. A growing annuity.Copyright ©2014 Pearson Education, Inc. All rights reserved.Learning Objectives4. Calculate the present value of:a. A single sum.b. An uneven stream of cash flows, starting either now or sometime in the future.c. An infinite stream of identical cash flows.d. An annuity, starting either now or sometime in the future.e. A growing perpetuityf. A growing annuity.Copyright ©2014 Pearson Education, Inc. All rights reserved.Learning Objectives5. Given four out of the following five inputs for an annuity, compute the fifth: (a) present value, (b) future value, (c) number of periods, (d) periodic interest rate, (e) periodic payment.6. Given three out of the following four inputs for a single sum, compute the fourth: (a) present value, (b) future value, (c) number of periods, (d) periodic interest rate.Copyright ©2014 Pearson Education, Inc. All rights reserved.Learning Objectives7. Given cash flows and an interest rate, compute the Net Present Value for a series of cash flows.8. Solve problems with a spreadsheet or calculator.9. Evaluate time value of money problems when cash flows are not annual.10. Given cash flows and present or future value, compute the Internal Rate of Return for a series of cash flows.Copyright ©2014 Pearson Education, Inc. All rights reserved.4.1 The Timeline•A timeline is a linear representation of the timing of potential cash flows.•Drawing a timeline of the cash flows will help you visualize the financial problem.Copyright ©2014 Pearson Education, Inc. All rights reserved.4.1 The Timeline (continued)•Assume that you made a loan to a friend. You will be repaid in two payments, one at the end of each year over the next two years.Copyright ©2014 Pearson Education, Inc. All rights reserved.4.1 The Timeline (continued)•Differentiate between two types of cash flows–Inflows are positive cash flows. –Outflows are negative cash flows, which are indicated with a – (minus) sign.Copyright ©2014 Pearson Education, Inc. All rights reserved.4.1 The Timeline (cont’d)•Assume that you are lending $10,000 today and that the loan will be repaid in two annual $6,000