Time Value of Money Flashcards
Someone is going to give you $5k in 1 year from today, interest rates are 2%, what is the present value of this future money?
$5k * 0.98 = $4900
ROA =
= return on Assets = net income / Assets * 100%
ROI =
Return on Investments = Net income / Investment * 100%
ROE =
Return on Equity = Net Income / Stockholder’s Equity
ROA / (1 - Debts/Assets) =
ROE
If the interest rate goes up, present value goes
DOWN
one reason why stocks tend to go down when Fed discusses raising interest rates
With simple PV, if time increases, then PV goes
DOWN
PV of $1 =
1 / ( (1+r)^n )
In these cases, lottery payouts, car loans, mortgages, anticipate using…
PV of Annuity
Yearly Payment of a Loan =
= Amount of Loan / PVIFA = Yearly Principal + Interest Payment (P&I)
The P&I payed per period on an amortized loan is…
constant
(Principal + Interest) - it will be the same each period
Amortization: Amount of interest per period =
= Total outstanding amount of loan * APR / # of periods per year
Truth in Lending Act did what
Banks must tell you total P&I you will owe over the lifetime of the loan up front, and not hide the information
If you have a $45k loan, maturity of 5 years, 6% interest, what is the monthly P&I
PVIFA = 4.212
Annual P&I = $45000/4.212 = $10683.76
Monthly P&I = $830.31
Which formula shows this breakdown:
ROA = Net Income / Assets =
Sales / Assets * Net Income / Sales = Assets Turnover * Profit Margin
DuPont Formula
If Profit Margin is 3%, and you want an ROA of 18%, what do you need Assets Turnover to be?
ROA = Profit Margin * Asset Turnover
18% / 3% = 6 times = Asset Turnover
Formula for Simple FV
FV = PV * (1+r)^n
If you have a $100k in a CD, maturity of 5 years, APR = 4%, compounded quarterly, what is the FV at maturity?
FV = $100k * (Simple FV (1%, 20 periods) = 1.220 * $100k - $122,000
When frequency of payment goes up, FV …
goes up
Discount rate is…
the annual reduction rate on a future value, the inverse of the growth rate
How long will it take you to double your money if you have a simple investment with a 9% interest rate?
Approximately 8 years
What interest rate would you need to quadruple the amount of money in an account over 18 years?
approximately 8% (FVIF = 3.996 at 8 years)
How much do you need to save for retirement if you want to withdraw $70k each year for 30 years. You have 40 years to save. Your account will accrue 4% interest after retirement, and can earn at 3%
- PVIFA (4%, 30 years) = 17.292»_space; 17.292 * $70k = $1,210,440 = amount you need at start of retirement
- FVIFA (3%, 40 years) = 75.401
FV = Payment * FVIFA»_space; Payment = $1,210,440 / FVIFA = $16,053.36 annually
Which crypto lost value and how much
BTC lost 10% of value from a Sunday to Monday, and has now fallen 54% of it’s record high
The US national Debt is now ___, in 1980 is was __
$30 trillion
$1 trillion
Lisa Cook was voted…
into the Federal Reserve Board by the Senate, she will be the first black woman on the board of the Fed
Jet Blue is trying to buy ___ for $ per share
Spirit, $30
_____ is selling 850 restaurants in Russia
Mcdonalds
McDonalds was losing ____ monthly since March when it closed it’s stores in ____
$55 million; Russia
Amazon’s stock price dropped from ___ in April to ____ in May
$3367 to $2142 > 36% drop
Elon musk put his purchase deal of Twitter on hold until he got more info on ____. This ___ Twitter’s stock price
spam bots
decreased (4%)
The Dow Jones IA closed down to ___, the lowest closing level since ___
31490 points
March 2021
Apple Revenue is getting a hit in Q2 with an _____ loss, due to ____
$8 billion; Covid
Government employees and contractor wage set to increase to
$15/hr
Government wants to add _____ charging stations to federal highways
550,000
Debentures have a ___ interest rate
very high, because high risk to the creditor
Because of what scandal, the CEO needs to review and sign the annual report released by companies
ENRON
Exxon reported a $21 billion loss in 2020, but reported ____ in 2021
$24.3 billion profit
With it’s profit, Exxon is planning to
buy back it’s own shares
When a company announces they plan to buy back shares, it can
cause stock prices to increase
shows confidence in own company
Buying back shares can….
save on dividend payments
Paypal share price ___
dropped dramatically (down from 300 in Aug 2021 to less than 100 / share)
Spirit and ____ are considering merging with ____ as the controlling interest. This would present an advantage of:
Frontier; Frontier; economies of scale
Alphabet announced a ______ in order to ___
Stock Split
Make the stock more affordable
Stock split is generally viewed ____ by the market and this happens
very positively
effective value goes up
a stock split ____ impact shareholder’s value
does not change [but there is a side effect of positive market view]
The FED made an announcement to ____ which caused stock prices to go down. This is an example of ____
raise interest rates
macro environment effects
A major tire company is buying Cooper’s Tires at ____ and adding 75000 workers. This is an example of
2.8 Billion;
economies of scale
How can a country defend it’s currency in the international currency market
- buy back it’s own currency using “hard currencies”
2. increase domestic interest rate
Why is it hard to protect your currency by buying it back in “common stock currencies” ?
most countries do not have enough foreign currencies to support their maternal currency. It’s a bandaid
SWIFT is
Society for Worldwide interbank financial Telecommunication
SWIFT was established in
1973, Brussels
Goal of SWIFT was to:
Transfer of money between banks to be done accurately, efficiently, securely, cheaply, reliable
About how many SWIFT transactions are there per day?
40 million
The rate a country would increase to try and defend it’s currency is the
Discount rate, rate that its central bank charges its member banks
Examples of common stock currencies
Dollar, euro, pound, swiss franc, yen, yuan
