Question

1. Given appropriate data, be able to manipulate and analyze time value of money scenarios.
   1. What is Time Value of Money?
   2. How do you compute PRESENT VALUE?
   3. How do you compute FUTURE VALUE?
   4. What is an ANNUITY?
   5. What is a PERPETUITY?
   6. What three factors are associated with valuing cash flow?
   7. What is the cost of capital?
   8. What is DISCOUNTING?
   9. What is COMPOUNDING?

2. Articulate and understand fundamental valuation principles.
3. When valuing any asset what three things must you know about the cash flows? Answer – Risk of cash flows (interest rate); size of cash flows (payment, present value, future value); and timing of cash flows (number of periods).

Answer 1

PartA :

TIme Value of Money means Today's USD is not equal totomorrows USD due to time differnce.

Part B:

Present Value - What is the today's value of your furture cash flow.

PV = FV / (1+r)^n

Part C:

Future Value - What is the value of amount that you have today in Future

FV = PV ( 1+ r)^n

Part D:

Annuity is series of cash flows for particular time with regular interval

Ex:

Deposting $ 1000 each year end for a period of 5 Years.

Part E:

Series of Cash flows for infinity period with a regular interval

Ex: Deposting $ 1000 each year end for infinite period.

Part g:

Return expecting from ret

Part h:

Discounting means bringing future CFs to today's value.

Part i:

Compounding means calculating Int on Int.

Ex: Deposit is made for 5 Years.

In case of simple Int, Principal amount for each year int calculation is Original amount invested.

In case of compounding, Principal amount for second year Int calculation is Principal amount for year1 & Int for Year1