TOPIC 2 Time value of money必看课件资料.ppt

Example Mortgages You would like to buy a house worth $400,000. If you make a 20% down payment, or $80,000, you can get a 30-year, 8% APR mortgage on the remaining $320,000. The mortgage requires you to make a flat monthly payment for the life of the loan. What will the monthly payments be? · 360 monthly payments · Monthly interest rate = 0.08 / 12 = 0.00667 · PVAF(360, 0.00667) = 136.28 · C = 320,000 / 136.28 = $2,348.14 Example Inflation Inflation - Rate at which prices as a whole are increasing. Nominal Interest Rate - Rate at which money invested grows. Real Interest Rate - Rate at which the purchasing power of an investment increases. ASSET EVALUATION TOPIC 2 Time Value of Money Topics Covered Present Value & Future Value Annuity & Perpetuity Effective Annual Interest Rate Inflation Currencies Present Value Present Value Value today of a future cash flow. Discount Rate Interest rate used to compute present values of future cash flows. Discount Factor Present value of a $1 future payment. Calculation Recommendations Four primary approaches to solving the problems. Using the formulas and a standard calculator. You will need basic algebra skills and a calculator that will raise numbers to a power and take roots. Using a financial calculator. A wide variety of financial calculators are available, in a wide range of prices. Using Excel on a personal computer. Excel contains built-in functions that will perform most Time Value of Money calculations. Using tables from the text. Before the ready accessibility of computing power, this method was used for all TVM problems. Definitions and Abbreviations annuity: a series of payments or receipts having three specific characteristics, also called ordinary annuity or annuity in arrears（迟付年金）. annuity due（即付年金）: an annuity where the payments occur at the beginning of evenly spaced time periods. CF0, CF1 , etc: cash flows, a series of payments or receipts or both. EAR: effective annual [interest] rat