following equation: [pic] 1‚276.76 = [pic] $40 + $1000 (1+ r)t (1+ r)60 Or equivalently‚ 1‚276.76 = 40 × Annuity factor (r ‚ 60) + 1‚000 × PV factor (r ‚ 60) These equations have only one unknown variable‚ the interest rate‚ r . you can use a financial calculator or spreadsheet to confirm that the solution is r = .03‚ or 3% per half year. This is considered
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Rule of 72 If at 10%‚ it will take 7.2 to double (just divide 72 by 10) 72 DIVIDED BY ANY NUMBER is how long it will take to double Present value PV=FV/(1+i)^n FV= future value PV= present value i= interest rate n= time Annuity= an individual present/future value IRA (10% compounding) Investor A- Age 16 invests $2‚000 for 8 years and stops Results- $1‚361‚797 Investor B- Age 23 $2‚000 for 43 years until age 65 Results- 1‚303‚282 Mortgage 30 years-
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percent per year throughout your career. How much money will you have on the date of your retirement 40 years from today ? A 15-year annuity pays $ 1‚500 per month‚ and payments are made at the end of each month. If the interest rate is 12 percent compounded monthly for the first seven years‚ and 6 percent compounded monthly thereafter‚ what is the present value of the annuity ? You are saving for the college education of your two children. They are two years apart in age; one will begin college 15 years
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of policy expires‚ the insured can get the cash value of the policy. Life Insurance Life insurance policies come in many forms. Some of the typical policies include: Universal Life: includes both a term life portion and a savings portion. Annuities: pay a benefit to insured until death‚ to cover retirement years. Life Insurance: Company Assets and Liabilities Life insurance companies derive funds from two sources: o They receive premiums that must be used to payout future claims when the
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Ch. 1: 1. Career opportunities and fields of study in finance: A. Corporate finance B. Banking C. Investments D. International finance E. Mathematical finance (primarily involved in forecasting‚ econometric modeling‚ etc.) Note: In this course‚ we will be using the term shareholders frequently; shareholders are owners of the firm. If you buy 100 shares of stock in Microsoft Corporation‚ you are a co-owner of Microsoft Corporation. 2. Goal of the firm: Shareholder wealth maximization (making
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Uniform Annual Equivalent (UAE) - A Capital Budgeting Method. (The evaluation of two mutually exclusive projects with varying lives requires careful examination of the existence of the reinvestment opportunities at the end of the different economic lives of the projects. The current article deals with a method that may be adopted in situations wherein the level of investments‚ the life of the projects and cash inflows (or outflows) are unequal.) Risk is inherent in almost every business decisions
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straightforward‚ and deceptively simple. The valuation of bonds is usually presented first‚ since the relatively certain cash flows are broken into an annuity and a payment of the par value at some specific date in the future. Preferred stock valuation follows bond valuation and the value of preferred stock is shown to be the present value of perpetual annuity. The cash flows from the constant-size dividend is fairly certain‚ and most preferred stock does not have a maturity date. Finally‚ common stock
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Time Value of Money Practice Problems − Solutions Dr. Stanley D. Longhofer 1) Jim makes a deposit of $12‚000 in a bank account. The deposit is to earn interest annually at the rate of 9 percent for seven years. a) How much will Jim have on deposit at the end of seven years? P/Y = 1‚ N = 7‚ I = 9‚ PV = 12‚000‚ PMT = 0 ⇒ FV = $21‚936.47 b) Assuming the deposit earned a 9 percent rate of interest compounded quarterly‚ how much would he have at the end of seven years? P/Y = 4‚ N = 7 × 4 = 28 ⇒ FV =
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acquired New England Financial (NEF)‚ one of the oldest and most venerable insurance companies in the U.S. MET’s product line included casualty (Auto and Home) insurance as well as various life insurance products (e.g. Term Life‚ Whole Life and Annuities). New England Financial focused exclusively on life insurance and wealth management offerings. While the average net worth of the typical METLife customer was approximately $200‚000‚ the net worth of the average NEF client was ten times that
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ownership and managementship 4 3. The role of the financial manager and the financial markets 4 How to calculate present values 5 1. Future values and present values 5 2. Looking for shortcuts – Perpetuities and annuities 6 3. More shortcuts – Growing perpetuities and annuities 7 4. How interests is paid and quoted 7 Valuing bonds 7 1. Using the present value formula to value bonds 7 2. How bond prices vary with interest rates 8 3. Real and nominal rates of interest 8 The value of common
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