FINAN 450 Lecture 1: Chapter 4, lecture 1

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Future value = present value(1+r)^t: r = rate, t = number of periods. Simple interest interest earned only on the original principal. Compound interest interest earned on principal and on interest received: (cid:862)interest on interest(cid:863) interest earned on reinvestment of previous interest payments. Future value of simple interest = pv(1+rt) I/y = period interest rate = r: c/y must equal 1 = default on new ba2+ Interest is entered as a percent, not a decimal. 5% interest = 5 not . 05: pmt = 0 (for this chapter only) (used for annuity, clear the registers before each problem. Be sure the calculator is set for cash flows at the end of each period. To send end (for cash flows occurring at the end of the period: press 2nd key, press bgn (above pmt) To change to begin, hit 2nd then set (above enter) to go back and fourth. To calculate fv of at 10% for 5 years: n = 5.

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