Docsity
Docsity

Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity


Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan


Guidelines and tips
Guidelines and tips

Financial Managers - Principles of Finance - Lecture Notes, Study notes of Finance

Financial Managers, Education Funding, Differing Cash, Annuity and Perpetuity, Equally Sized, Future Values, Present Values, Valuing Annuities and Perpetuities, Mortgage Payments, Affordable Payments are some keywords from this lecture of Principles of Finance.

Typology: Study notes

2011/2012

Uploaded on 12/20/2012

alishay
alishay 🇮🇳

4.3

(26)

92 documents

1 / 1

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
Chapter 5
As financial managers and pursuing either the maximization of the firms stock price or our own
material well-being, we need a set of tools to plan for different sets of cash inflows (income, gifts,
inheritance, future property or various asset sales, bonuses, retirement proceeds, etc.) and outflows
(retirement and education funding, home and auto purchases, durable housing goods purchases,
children’s expenses, parents expenses, etc.). We need a manner with which we can compare the
impact of each of these flows to one-another; we need a way to contrast the impacts of differing cash
flows occurring years apart. The material in chapters 4-8 begins to provide those tools.
First, the material from Ch. 4 (review our chapter 4 handout), then on with ch. 5.
Key ideas from chapter 4 include all the issues and calculations in table 4.4 on p.106.
Similarly, key ideas from ch. 5 include all the issues and calculations in table5.2 on p.129.
These are the tasks you need to be able to perform from chapter 5:
1. Breakdown of the annuity and perpetuity functions.(Recalling that multiple, equally
spaced cash flows - like car loans and mortgages - are annuities {ordinary annuities vs. annuities
due}. Endless, equally sized and equally spaced cash flows - like British Consols or preferred stocks
in the US - are perpetuities)
2. Future values of multiple cash flows (saving for retirement, home purchase, educ.)
3. Present values of multiple cash flows (to express varying cash flows occurring in the
future in present value terms to make them comparable)
4. Valuing annuities and perpetuities.
5. Calculating mortgage payments, number of years to pay, effective cost of borrowing, limit
of borrowing given limits on affordable payments, required payments to fund
retirement/house/education, present and future values of multiple cash flows...deja vu all over again?
6. Draw all of your studies from sections 5.3 and 5.4 from your class notes. You will be
tested on these sections. (Actually, you will be examined on all the topics mentioned above.)
Remember most critically from these sections that to compare interest rates, we ought always
convert rates to Aeffective annual rates.@
7. Pay close attention to and be comfortable with all the examples in class.
Work with your classmates on the problems from chapters 4 and 5; braced on the tasks above, you
are in good shape with your intro to the TVOM and should be well on the way to developing a long
and intimate relationship with your BA-II Plus...life is good, isnt it?
docsity.com

Partial preview of the text

Download Financial Managers - Principles of Finance - Lecture Notes and more Study notes Finance in PDF only on Docsity!

Chapter 5 As financial managers and pursuing either the maximization of the firm’s stock price or our own material well-being, we need a set of tools to plan for different sets of cash inflows (income, gifts, inheritance, future property or various asset sales, bonuses, retirement proceeds, etc.) and outflows (retirement and education funding, home and auto purchases, durable housing goods purchases, children’s expenses, parent’s expenses, etc.). We need a manner with which we can compare the impact of each of these flows to one-another; we need a way to contrast the impacts of differing cash flows occurring years apart. The material in chapters 4-8 begins to provide those tools.

First, the material from Ch. 4 (review our chapter 4 handout), then on with ch. 5. Key ideas from chapter 4 include all the issues and calculations in table 4.4 on p.106. Similarly, key ideas from ch. 5 include all the issues and calculations in table5.2 on p.129.

These are the tasks you need to be able to perform from chapter 5:

  1. Breakdown of the annuity and perpetuity functions.(Recalling that multiple, equally spaced cash flows - like car loans and mortgages - are annuities {ordinary annuities vs. annuities due}. Endless, equally sized and equally spaced cash flows - like British Consols or preferred stocks in the US - are perpetuities)
  2. Future values of multiple cash flows (saving for retirement, home purchase, educ.)
  3. Present values of multiple cash flows (to express varying cash flows occurring in the future in present value terms to make them comparable)
  4. Valuing annuities and perpetuities.
  5. Calculating mortgage payments, number of years to pay, effective cost of borrowing, limit of borrowing given limits on affordable payments, required payments to fund retirement/house/education, present and future values of multiple cash flows...deja vu all over again?
  6. Draw all of your studies from sections 5.3 and 5.4 from your class notes. You will be tested on these sections. (Actually, you will be examined on all the topics mentioned above.) Remember most critically from these sections that to compare interest rates, we ought always convert rates to Aeffective annual rates.@
  7. Pay close attention to and be comfortable with all the examples in class.

Work with your classmates on the problems from chapters 4 and 5; braced on the tasks above, you are in good shape with your intro to the TVOM and should be well on the way to developing a long and intimate relationship with your BA-II Plus...life is good, isn’t it?

docsity.com