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Moving Cash Flows: Review

Moving Cash Flows: Review. Formulas. Growing Annuity. Annuities are a constant cash flow over time Growing annuities are a constant growth cash flow over time. What are you worth today?. You will make $100,000 the first year.

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Moving Cash Flows: Review

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  1. Moving Cash Flows: Review

  2. Formulas

  3. Growing Annuity • Annuities are a constant cash flow over time • Growing annuities are a constant growth cash flow over time

  4. What are you worth today? • You will make $100,000 the first year. • You expect to work for 40 years, get 9% raises every year and 20% per year on investments.

  5. Cash Flow Timing • When does the first cash flow occur relative to the present value of the _______ • Perpetuity? Growing perpetuity? • Annuity? Growing annuity? • One period later!

  6. Review: Bond Features • Coupon Payments: Regular interest payments • Semi annual for most US corporate bonds • Types of Coupon payments • Fixed Rate: 8% per year • Floating Rate: 6-mo. Treasury bill rate + 100 basis points. • Face or Par Value: $1,000/bond • Maturity: no. of years from issue date until principal is paid • Coupon Rate

  7. Bond Valuation Annuity Formula

  8. What is the price of a $1000 bond maturing in ten years with a 12% coupon that is paid semiannually if the YTM is 10%

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