MFIN1021 Lecture 5: Time Value of $_
Document Summary
Reasons the stock market has done so well: Rebound from a recession (cheap to buy afterwards) Returnt = pricet - pricet-1 +payoutst / price t -1. Fvn = pv * ( 1+ total return ) R needs to be in the same time value as n. Periods for r have to match periods in n. If n is in days then r must be in days. R = (fv / pv ) ^1/n - 1. N = ln(fv / pv) / ln (1+r) If the value changes over time you can add the discounted values of the cash flows to find the value of the asset. Pv = sum (cfn/(1+r)^n) (n being the term) Perpetuities: stream of infinite identical cash flows. Valuing a company, assume it will last forever/ long time. Annuities: finite (ending) stream of identical cash flows. Identical fixed payment to be made each period until the end of time starts next year.
