Week 8 Flashcards
FV
How much will my money be worth in this money years for this interest rate?
FV Formula
-negative?
-do we need all arguments?
-YES either pv or pmt has to be negative
-Not all
PV of annuity (constant cash flows?)
What is the present value of my investment? How much do I have to put in to get this future value?
Net Present Value
LIAR!!!!!!! USED FOR ANNUITY (CONSTANT CASH FLOWS)
NOT THE NPV FUNCTION!!!!!!
Difference between present value and investment
=PV+Investment (investment will be negative)
IF NEGATIVE: not a good investment bc the value today is worth leess then what you invested
IF POSITIVE: good investemnt
PV of varied cash flows???????????????????
NPV FUNCTIONNNNN
=NPV(RATE, RANGE OF VALUES)
NPV of varied cash flows?????????
3
NPV FUNCTION!!!!!!11
=NPV(RATE, RANGE OF VALUES)+INVESTMENT
Difference between present value and investment
THIS Should be small value (Make sure investment is negative)
IRR
=irr(investment,cash flows)
if IRR is greater than discount rate! INVEST!!! IF IRR IS LOWER THAN DISCOUNT RATE DO NOT INVEST
How to see if you should invest?
- Is irr> discount rate? YES
- is npv positive? YES
RETIREMENT scenario: Savings?
Use FV(rate,nper,pmt, pv)
FV(RSP rate, number of years to retire, -savings per year)
Retirment cost of living
=FV(Inflation rate, number of years to retire, present cost of living)
length of retirment funds
funds= savings
retirement cost of living= retiremnt cost of living
Years= use nper(rate, pmt, pv)
Using scenario manager?!
FIRST SCENARIO HAS TO BE LINKED IN SOME SORT OF FORMULA!!
Which rate do you use in ammortization schedule?
EFFECITVE RATE
“Borrowing” money questions
THESE BECOME POSITIVE PRESENT VALUES!
KEY THING ABOUT ANY FINANCIAL FUNCTION QUESTIONS:
loan for 6 years, Rate of 3% compounded monthly?
RATE in formula is 3*12 months
NPER in formula is 6*12 months
