MGM230H5 Lecture Notes - Lecture 1: Corporate Finance, Capital Budgeting, Investment

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Revolves around 6 main principles: time value of money, risk vs. reward, diversification, efficient financial markets, management vs. owner, greed. Worth at a specified time in the future assuming a certain interest later. Interest rate (r) - exchange rate between earlier money and later money: term (t) number of periods. 2 methods of which interest can be earned: simple interest earn interest (return) on principal only. Suppose you invest 1000 for one year at 5% per year. Fv in 1 year = principal + interest = 1000 + 50 = 1050. Interest: 1000(0. 5) = 50 + 1000(0. 5) = 50. Fv in 2 years = principal + interest = 1050 + 1050 = January 4, 2017: compounded interest earn interest on principal and reinvested interest. Suppose you invest 1000 for 2 years at 5% per year. The extra 2. 50 comes from interest from the interest of (0. 5)50. Loan payments for an automobile, mortgage, earnings from lottery winnings, etc.

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