FINANCE: Chapter 4 - Discounted Cash Flow
- Financial assets are substitutes for each other.
- That implies that they have some properties in common, but will be differentiated in other dimensions
- A substantial piece of this course is learning how to use Excel.
- Use Excel for basic arithmetic operations:
+, -, *, / (with occasional SUM()).
- This chapter makes heavy use of many Excel functions.
- Time Value of Money (pg 103)
- If I owe you a sum of money, would you rather receive it today or a year from today? The time value of money refers to wht the value of a dollar amount is today (present value) versus what the value of that same dollar amount will be in X amount of time (future value)
- Future Value (pg 103)
- The future value (FV) of this security is its value after a specified time has passed
- In this case the future value is $100+(0.05)($100)=$105.
- Present Value (pg 108)
- The future value of any sum today is FV = PV x (1 + I)N. That means PV = FV/(1 + I)N
- What is the amount that we need to invest or deposit today in order to have a specific amount in the future?
- Annuities (pg 111)
- Annuities meet three criteria:
- Pay an equal amount
- At a specific time interval
- For a specific time period
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