tailieunhanh - Lecture Fundamentals of finance – Chapter 5: Discounted cash flow valuation

In this chapter, students will be able to understand: 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 amortised or paid off, understand how interest rates are quoted. | Chapter 5 Lecture - Discounted Cash Flow Valuation Chapter 5 Lecture Discounted Cash Flow Valuation Learning Objectives After studying this chapter, you should be able to: • LO1 Determine the future and present value of investments with multiple cash flows. • LO2 Calculate loan payments and find the interest rate on a loan. • LO3 Describe how loans are amortized or paid off. • LO4 Explain how interest rates are quoted (and misquoted). 5-1 5-2 Future Value: Multiple Cash Flows (1) Future Value: Multiple Cash Flows (1) • Find the value at year 3 of each cash flow and add them together. – Year 0: FV = $7,000()3 = $ 8, • You think you will be able to deposit $4,000 at the end of each of the next three years in a bank account paying 8 percent interest. • You currently have $7,000 in the account. • How much will you have in 3 years? • How much in 4 years? – Year 1: FV = $4,000()2 = $ 4, $4,000()1 = $ 4, – Year 2: FV = – Year 3: value = $ 4, – Total value in 3 years = $21, • Value at year 4 = $21,() = $23, 5-3 5-4 1 Chapter 5 Lecture - Discounted Cash Flow Valuation FV Example Calculator Solution FV Excel Solution Excel Solution Year Nper 0 3 1 2 2 1 3 Rate PV -7000 -4000 -4000 Value at year 4: Year Nper Rate PV 4 1 -21, PMT 0 0 0 PMT 0 Calculator Solution Year N 0 3 1 2 2 1 3 FV 8, 4, 4, 4, 21, I/Y 8 8 8 Value at year 4: Year N I/Y 4 1 8 PV -7000 -4000 -4000 PMT 0 0 0 CPT FV 8, 4, 4, 4, 21, PV -21, PMT 0 CPT FV 23, FV 23, =FV(Rate, Nper,PMT,PV) 5-5 5-6 Future Value: Multiple Cash Flows (2) Future Value: Multiple Cash Flows (2) • If you deposit $100 in one year, $200 in two years and $300 in three years. • If you deposit $100 in one year, $200 in two years and $300 in three years. • How much will you have in three years at 7 percent interest? • How much in five years