Ch4Net present Value(澳大利亚新英格兰大学公司金融课件)概要1.ppt

Lecture 4 Net Present Value (NPV) NPV calculation : single period case NPV calculation : multiple periods, annual compounding NPV calculation : multiple periods, annual compounding (continued) NPV calculation : multiple periods, within year compounding Stated Vs. Effective Annual Interest Rate Continuous compounding Four Classes of Cash Flow Streams Example 1 Example 2 Example 2 (continued) Example 3 Example 3 (continued) * initial cash outflow cash inflow in one period present value of next period’s cash flow The interest compounds when the yield on an investment is reinvested FV of $1 invested for 2 years at the compound interest rate of 9% per year PV of $1 to be received in 2 years with 9% annual interest rate FV of an investment C after T years of earning compound interest r PV of a cash flow C to be received T years into future NPV of a stream of cash flows Present value factor Compounding for m periods within the year Stated Annual Interest Rate (SAIR) Interest for each of m periods m periods Next year Now FV of an investment C after T years Example What happens if the interest is compounded semi annually? Consider an investment of $1,000 that is expected to yield $500 in 1 year and $700 in 2 years. What is the NPV of the investment at an annual discount rate of 9% ? EAIR is defined as Effective annual interest rate (EAIR) In the above example, Example SAIR is meaningful only when compounding interval is given. On the other hand, EAIR is meaningful itself without a compounding interval. Commonly used APR (annual percentage rate) is the most common synonym for SAIR Hence, the EAIR becomes And the value of C after T years becomes Frequently continuously compounded rates are used by financial institutions. The rate can be obtained by compounding every infinitesimal instant, i.e. by letting the number of compounding periods m go to infinite. How can a price of a consol be determined? The price will be the PV of al