FIN20014 Lecture Notes - Lecture 3: Fixed Income, Market Price, Net Present Value
Document Summary
Fin20014 financial management lecture-3 time value of money. Return at end 000 000. Market ,000 (pv) x 110/100 = ,000(fv) Machine ,909 (100/110 = 1/1. 10 =0. 909) ,000. Market price of the project = ,909. Npv = present value outlay = ,909 ,000 = net contribution to value. Interest is received on accumulated interest from previous periods as well as on the principal, that is, interest generates further interest. Fv 5 = ,000 + (1,000 x 10% x 5) = ,500. An annuity is a series of cash flows of equal amount, equally spaced in time, for a certain number of periods. Ordinary annuity: cash flows occur at the end of each period. Annuity due: cash flows occur at the beginning of each period. A perpetuity is a series of cash flows of equal amount, equally spaced in time, for unlimited time.
