Textbook Notes (368,611)
Canada (162,009)
Finance (362)
FIN 502 (69)
Chapter 2

CHAPTER 2 time value of money.docx

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FIN 502
Steve Joyce

FIN502 Personal Financial PlanningCHAPTER 2 time value of money Time value of money comparing monetary amounts that you pay or receive at different times o Underlying concept of time value of money is rate of returnRATE OF RETURNSINGLE PERIODDiscount bond investment that pays no interest during its lifeDiscount rate rate of interest or rate of return that we use to equate amounts of money paid or received in different periods o CF is the value of CF discounted at k 01KCFCFCF 100 Krate of returnCFcash flowRATE OF RETURNMULTIPERIODArithmetic mean return take the sum and find the mean Arithmetic mean average kn t Ksum of rate of returns for t number of timesNnumber of years Geometric mean return rate of return that would compound to the same final answer as individual rates multiplied together o Should be lower or equal to arithmetic mean return difference would be large 1nGeometric mean average 1k1 t 1kmultiply all the factors f
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