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Time Value of Money - continued

Time Value of Money - continued. Net Present Value of an Investment Opportunity. Perpetuities, Annuities, and Other Special Cases. Perpetuities Annuities Growing Cash Flows Growing Perpetuity Growing Annuity. Short Cuts. Perpetuity – A fixed amount of cash is received forever.

alec-dalton
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Time Value of Money - continued

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  1. Time Value of Money - continued

  2. Net Present Value of an Investment Opportunity

  3. Perpetuities, Annuities, and Other Special Cases • Perpetuities • Annuities • Growing Cash Flows • Growing Perpetuity • Growing Annuity

  4. Short Cuts Perpetuity – A fixed amount of cash is received forever. Examples: Preferred stock, consol bond Note: Mathematically, we have a declining geometric series, which has a finite value

  5. Short Cuts Perpetuity – A fixed amount of cash is received forever. Examples: Preferred stock, consol bond Note: Mathematically, we have a declining geometric series, which has a finite value

  6. Perpetuity - example • Suppose that as a successful TCU graduate you decide to establish an endowed chair in finance that will pay $250,000 a year in perpetuity. How much money do you need to donate to the school to establish this endowment? Assume the prevailing interest rate is 10%

  7. Short Cuts Annuity - An asset that pays a fixed sum each year for a specified number of periods. Example: mortgage payments, car payments, car insurance, rent

  8. Short Cuts

  9. Present Value of a Lottery Prize Annuity

  10. Future Value of an Annuity

  11. Retirement Savings Plan Annuity

  12. Growing Perpetuity • Suppose you change your wish and decide that the salary that the professorship pays should grow at 4% annually. How much money do you need now?

  13. Growing Perpetuity

  14. Retirement Savings with a Growing Annuity

  15. Present Value of a Growing Annuity

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