The Time Value of Money
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Math mod 4 reading – Module 4 online lectures
The following topics from the textbook Foundations of financial management:
Sources of short-term financing
The time value of money
Julian has been secretly depositing $500 in his savings account (earning five percent) every Christmas starting when he was 16 years old. Next year, he wants to surprise his girlfriend with a diamond ring for Christmas. Julian will be 36 and has finally found a girlfriend of which his mother approves. Julians savings account is compounded annually. How much will Julian be able to spend on the ring after his $500 contribution this year?
Joe Slowgoin has been able to lead his university through 25 years of solid growth in a fast-changing market. As a result, the board wants to reward him with a bonus to sweeten his retirement years. They are offering him $75,000 a year for 20 years.
Joe wants to buy a sailboat and sail the seven seas. To do this he would prefer a onetime payment to make the purchase. Assuming an interest rate of seven percent, what is the present value of his bonus?
Suddenly Mr. Slowgoins replacement is hired away by Swift College, and Joe will need to develop a new replacement. Joe Slowgoin will not be able to start his retirement for three years. The board assumes the bonus should stay the same, but Joe knows the present value of his deferred bonus is diminished. What would be the present value of his deferred annuity?
Mod 5 A2 The following topics from the textbook Foundations of financial management:
Valuation and rates of return
Cost of capital