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$Page 66 66 5: Time Value of Money Calculations Step 2. $GGWKHDGGLWLRQDODGYDQFHSD\PHQWWR396WRUHWKHDQVZHU Step 3. )LQGWKHSUHVHQWYDOXHRIWKHEX\RSWLRQ Step 4. $GGWKHUHVXOWVRIVWHSVDQG Keys: Display: Description: *b12.006HWVSD\PHQWVSHU\HDU P47.006WRUHVQXPEHURI SD\PHQWV (2–2,400.006WRUHVPRQWKO\ SD\PHQW /0.006WRUHV)9IRUVWHS .9.006WRUHVLQWHUHVWUDWH 95,477.55&DOFXODWHVSUHVHQW YDOXHRIPRQWKO\ SD\PHQWV 2(97,877.55$GGVDGGLWLRQDO DGYDQFHSD\PHQW...$

$Page 67 5: Time Value of Money Calculations 67 Amortization $PRUWL]DWLRQLVWKHSURFHVVRIGLYLGLQJDSD\PHQWLQWRWKH DPRXQWWKDWDSSOLHVWRLQWHUHVWDQGWKHDPRXQWWKDW DSSOLHVWRSULQFLSDO3D\PHQWVQHDUWKHEHJLQQLQJRIDORDQ FRQWULEXWHPRUHLQWHUHVWDQGOHVVSULQFLSDOWKDQSD\PHQWV QHDUWKHHQGRIDORDQ 7KH *NH\RQWKH+3%,,DOORZV\RXWRFDOFXODWH n7KHDPRXQWDSSOLHGWR LQWHUHVWLQDUDQJHRISD\PHQWV n7KHDPRXQWDSSOLHGWR SULQFLSDOLQDUDQJHRISD\PHQWV n7KHORDQEDODQFH...$

$Page 68 68 5: Time Value of Money Calculations 7KHQXPEHUVGLVSOD\HGIRULQWHUHVWSULQFLSDODQGEDODQFHDUHURXQGHGWR WKHFXUUHQWGLVSOD\VHWWLQJ To Amortize. 7RDPRUWL]HDVLQJOHSD\PHQWHQWHUWKHSHULRGQXPEHU DQGSUHVV *7KH+3%,,GLVSOD\VWKHDQQXQFLDWRUPERIROORZHG E\WKHVWDUWLQJDQGHQGLQJSD\PHQWVWKDWZLOOEHDPRUWL]HG 3UHVV WRVHHLQWHUHVW INT\f3UHVVDJDLQWRVHHWKHSULQFLSDO PRIN\f DQGDJDLQWRVHHWKHEDODQFH BAL\f&RQWLQXHSUHVVLQJWRF\FOHWKURXJK...$

$Page 69 5: Time Value of Money Calculations 69 ,I\RXDOUHDG\NQRZWKHPRUWJDJHSD\PHQW\RXFDQHQWHUDQGVWRUHLWMXVW OLNH\RXVWRUHWKHRWKHUIRXUYDOXHV1H[WDPRUWL]HWKHILUVW\HDU 7KHDPRXQWSDLGWRZDUGLQWHUHVWDQGSULQFLSDO \ \fHTXDOVWKHWRWDORIPRQWKO\SD\PHQWV ï \f7KHUHPDLQLQJEDODQFHHTXDOVWKHLQLWLDOPRUWJDJHOHVVWKH DPRXQWDSSOLHGWRZDUGSULQFLSDO ² \f Keys: Display: Description:...$

$Page 70 70 5: Time Value of Money Calculations $PRUWL]HWKHVHFRQG\HDU 7KHDPRXQWSDLGWRZDUGLQWHUHVWDQGSULQFLSDO \ \fHTXDOVWKHWRWDORIPRQWKO\SD\PHQWV ï \f7KHUHPDLQLQJEDODQFHHTXDOVWKHLQLWLDOPRUWJDJHOHVVWKH DPRXQWDSSOLHGWRZDUGSULQFLSDO ²² \f0RUHPRQH\LVDSSOLHGWRSULQFLSDOGXULQJWKHVHFRQGUDWKHU WKDQWKHILUVW\HDU7KHVXFFHHGLQJ\HDUVFRQWLQXHLQWKHVDPHIDVKLRQ Example:...$

$Page 71 5: Time Value of Money Calculations 71 $PRUWL]HWKHVWWKDQGWKSD\PHQWV 01.00(QWHUVILUVWSD\PHQW *1– 1LVSOD\V3(5DQGWKH DPRUWL]HGSD\PHQWSHULRG –310.42LVSOD\V35,1DQGWKHILUVW SULQFLSDOSD\PHQW 0.00LVSOD\V,17DQGWKHLQWHU HVW 13,939.58LVSOD\V%$/DQGWKHORDQ EDODQFHDIWHURQHSD\PHQW 025.00(QWHUVSD\PHQWWRDPRU WL]H * 25– 25LVSOD\V3(5DQGWKH DPRUWL]HGSD\PHQWSHULRG –220.21LVSOD\V35,1DQGWKH SULQFLSDOSDLGRQWKHWK SD\PHQW...$

$Page 72 72 5: Time Value of Money Calculations Interest Rate Conversions 7KH,QWHUHVW&RQYHUVLRQDSSOLFDWLRQXVHVWKUHHNH\V *\b*ZDQG*b7KH\FRQYHUWEHWZHHQQRPLQDO DQGDQQXDOHIIHFWLYHLQWHUHVWUDWHV1RPLQDODQGHIIHFWLYH LQWHUHVWUDWHVDUHGHVFULEHGRQSDJH ,I\RXNQRZDQDQQXDOQRPLQDOLQWHUHVWUDWHDQG\RXZLVK WRVROYHIRUWKHFRUUHVSRQGLQJDQQXDOHIIHFWLYHUDWH (QWHUWKHQRPLQDOUDWHDQGSUHVV *\b (QWHUWKHQXPEHURIFRPSRXQGLQJSHULRGVDQGSUHVV *b ...$

$Page 73 5: Time Value of Money Calculations 73 First Bank Second Bank Third Bank )LUVW%DQNRIIHUVDVOLJKWO\EHWWHUGHDOVLQFHLVJUHDWHUWKDQDQG Compounding and Payment Periods Differ 7KH790DSSOLFDWLRQDVVXPHVWKDWWKHFRPSRXQGLQJ SHULRGVDQGWKHSD\PHQWSHULRGVDUHWKHVDPH6RPHORDQ LQVWDOOPHQWVRUVDYLQJVGHSRVLWVDQGZLWKGUDZDOVGRQRW FRLQFLGHZLWKWKHEDQN·VFRPSRXQGLQJSHULRGV,IWKH SD\PHQWSHULRGGLIIHUVIURPWKHFRPSRXQGLQJSHULRG...$

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$Page 75 6: Cash Flow Calculations 75 6 Cash Flow Calculations How to Use the Cash Flow Application 7KHFDVKIORZDSSOLFDWLRQLVXVHGWRVROYHSUREOHPVZKHUH FDVKIORZVRFFXURYHUUHJXODULQWHUYDOVEXWDUHRIYDU\LQJ DPRXQWV$

$Page 76 76 6: Cash Flow Calculations XXX Keys: Display: Description: *&0.00&OHDUVDOOUHJLVWHUV *b12.006WRUHVSHULRGVSHU\HDU (,–5,000.00(QWHUVLQLWLDOFDVKIORZ LVSOD\VFDVKIORZ JURXSQXPEHUZKLOH \RXKROGGRZQ , (,–2,000.00(QWHUVQH[WFDVKIORZ (,–4,000.00(QWHUVQH[WFDVKIORZ ,11,765.29(QWHUVILQDOFDVKIORZ *938.98&DOFXODWHVDQQXDO QRPLQDO\LHOG d3.250RQWKO\\LHOG 12 3 -5,000.00 -2,000.00 -4,000.0011,765.29 Flows received are positive. Flows paid out are negative....$

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							5: Time Value of Money Calculations 71
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 .book  Page 71  Wednesday, June 21, 2000  5:19 PM

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							72 5: Time Value of Money Calculations
Interest Rate Conversions
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Investments With Different Compounding Periods
Example: Comparing Investments.

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							5: Time Value of Money Calculations 73
First Bank
Second Bank
Third Bank
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Compounding and Payment Periods Differ
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.book  Page 73  Wednesday, June 21, 2000  5:19 PM

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							74 5: Time Value of Money Calculations
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							6: Cash Flow Calculations 75
6
Cash Flow Calculations
How to Use the Cash Flow Application
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							76 6: Cash Flow Calculations
XXX
Keys: Display: Description:
*&0.00&OHDUVDOOUHJLVWHUV
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,
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12 3
-5,000.00 -2,000.00
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Flows received
are positive.
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are negative.
chapt_6.fm  Page 76  Thursday, June 22, 2000  12:32 PM

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							6: Cash Flow Calculations 77
NPV and IRR/YR: Discontinuing Cash Flows
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,55

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							78 6: Cash Flow Calculations
:KHQHYHU\RXHQWHUDVHULHVRIFDVKIORZVLWLVLPSRUWDQWWRDFFRXQWIRU
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CF1=0,N1=6
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,N2=3
CF 3 = 10,000
,N3=1
12 345678910
chapt_6.fm  Page 78  Thursday, June 22, 2000  12:32 PM

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							6: Cash Flow Calculations 79
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							80 6: Cash Flow Calculations
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