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York University (33,712)
Lecture

# Lecture1.docx

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School
York University
Department
Course
Professor
Chris Robinson
Semester
Winter

Description
LECTURE 1 We rather have the money now then later  Discount rate  Different forms of money are not the same : eg. Blood diamond  Helps with personal financial planning over the whole life time  Best alternative available  Opportunity cost Mechanics of time value: - FV and PV - Annuities deferred / ordinary - Growing annuities Multi- period rate of return - Arithmetic : sum of all % / number - Geometric: {( 1+ r1) ( 1+r2) ….. (1+rn)^ (1/n)} – 1 - APR : \$1000 interest @ 12% p.a, compounded monthly APR of 1% EAR ={ ( 1.01)^12 } -1 = 12.68% - Reinvestment Assumption: EAR : the interest does not change monthly and it sticks to 12.68% and therefore you can infinitely reinvest your interest to get more. APR: reinvested interest do not get anything. Factors affecting discount rates: - Pure time premium : 2-3% ( really low) - Risk - The present value would be same if you compute th
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