Chapter 6 Discounted Cash Flow Valuation 0
0 Chapter 6 Discounted Cash Flow Valuation
Chapter Outline Future and Present values of Multiple Cash Flows Valuing Level Cash Flows:Annuities and Perpetuities Comparing Rates:The Effect of Compounding Periods Loan Types and Loan Amortization
1 Chapter Outline n Future and Present Values of Multiple Cash Flows n Valuing Level Cash Flows: Annuities and Perpetuities n Comparing Rates: The Effect of Compounding Periods n Loan Types and Loan Amortization
Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute the present value of multiple cash flows ■ Be able to compute loan payments Be able to find the interest rate on a loan Understand how loans are amortized or paid off Understand how interest rates are quoted 2
2 Key Concepts and Skills n Be able to compute the future value of multiple cash flows n Be able to compute the present value of multiple cash flows n Be able to compute loan payments n Be able to find the interest rate on a loan n Understand how loans are amortized or paid off n Understand how interest rates are quoted
Multiple Cash Flows-Future Value Suppose you plan to deposit $100 into an account in one year and $300 into the account in three years.How much will be in the account in five years if the interest rate is 8%? FV=$100(1.08)4+$300(1.08)2=$136.05+$349.92= $485.97 3
3 Multiple Cash Flows – Future Value n Suppose you plan to deposit $100 into an account in one year and $300 into the account in three years. How much will be in the account in five years if the interest rate is 8%? § FV = $100(1.08)4 + $300(1.08)2 = $136.05 + $349.92 = $485.97
Time Line 0 7 2 3 4 5 $100 $300 $349.92 $136.05 $485.97 4
4 Time Line $100 0 1 2 3 4 5 $300 $136.05 $349.92 $485.97