AFF 210 Chapter 4 Notes PDF

Preview

Summary

lecture notes on chap 4...

Description

AFF 210 CHAPTER 4 NOTES/LECTURE 1 PART 2 -

-

Timeline: a graphical representation used to show the timing of cash flows Compounding: the process of finding a future value of a single payment or a series of payments Opportunity cost: a cash flow that a firm must forego to accept a project. For example, if the project requires the use of a building that could be sold, the market value of the building is an opportunity cost of the project Discounting: the process of finding the present value of a single payment or a series of payments Annuity: a series of payments of a fixed amount for a specified number of periods Annuity due: an annuity with payments occurring at the beginning of each period Future value of the annuity: the ending value of a stream of equal payments, where N is the number of payments of the annuity FVAn: the ending value of a stream of equal payments, where N is number of payments of the annuity. Consols: another term for perpetuity. Consols were originally bonds issued by England in 1815 to consolidate past debt Perpetuity: a series of payments of a fixed amount that last indefinitely Payment (PMT): Equal to the dollar amount of an equal, or constant cash flow (an annuity) Cash flow (CFt): refers to uneven cash flows, where t is the period in which the cash flow occurs Annual percentage rate (APR): The nominal annual interest rate is also called the annual percentage rate, or the APR Amortized loan: a loan repaid in equal periodic amounts Amortization schedule: a table that breaks down the periodic fixed payment of an installment loan into its principal and interest components

Textbook -

-

the time value of money helps you determine how much a stock is worth, what you should pay for a bond, or whether a company should invest in a new factory. In personal finance, it helps answer questions such as how much you should save in order to retire comfortably and whether you should buy or lease a car....