# CU Denver FNCE 3000 - EXAM 3 REVIEW MATERIAL (7 pages)

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# EXAM 3 REVIEW MATERIAL

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## EXAM 3 REVIEW MATERIAL

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Fnce 3000 - Principles of Finance

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NEW MATERIAL SINCE EXAM II TIME VALUE OF MONEY Pt III know how to calculate present value of a lump sum and explain the result PV FV 1 I N A lumpsum is a one time cashflow or payment and it occurs on one year or less If you wish to have FV and XX years n and you can earn compounded annually i you must invest today be able to calculate present value when compounding occurs more frequently than annually PVLS FV 1 I N Multiply N Divide i Semiannual 2 Quarterly 4 Monthly 12 Daily 365 understand the effect of compounding more frequently than annually on PV see Time Value of Money Pt III Discussion for Prob 5 24 parts a and b When it is compounded more frequently than annually PV gets smaller than what it would have been annually understand the relationship between PV and iTIME VALUE OF MONEY Pt IV know the difference between an ordinary annuity and an annuity due Ordinary annuity has regularly occurring payments and the END of the period Annuity Due comes at the BEGINNING of the period know how to find the future value of an annuity and explain the result EX 2000 end of year for 20 years compounded annually at 4 ORDINARY FVA PMT x 1 i n 1 i 2000x 1 04 20 1 04 or PMT 2000 PV 0 I Y 4 N 20 years CPT FV If you invest pmt at the end of every year for XX n years and earn compounded annually i you will have fva IF you want to find out FVA annuity due you the number for ordinary due and use this equation FVAannuitydue FVAordinary x 1 i know how to find the present value of an annuity and explain the result PVAordinary PMT x 1 1 1 i n i If you invest pmt at the beginning of every year for XX n and earn compounded annually i you will have pva INTRO TO VALUATION entire topic same as for QUIZ 2 Know other names for the fundamental value intrinsic or theoretical value be able to explain how to calculate the fundamental value V of an asset PVLS FV x 1 1 i n If you invest today and receive in XX years your compound annual rate of return will be be able to calculate the fundamental

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