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Future Value - Asset Managment - Lecture Slides, Slides of Management Fundamentals

Asset Management is an important subject in Economics. In these Lecture Slides, following concepts are discussed : Future Value, Equation, Stream of Payments, Value, Contributions, Invested, Contributions, Calculating, Annuity, Future Value

Typology: Slides

2012/2013

Uploaded on 07/26/2013

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devnarayan 🇮🇳

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FutureValueofanAnnuity
Equation(cont’d)
Thisequationisusedtodeterminethefuture
valueofastreamofpaymentsinvestedinthe
present,suchasthevalueofyour401(k)
contributions.
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Future

Value

of

an

Annuity

Equation

(cont’d)

This equation is used to determine the future value of a stream of payments invested in the present, such as the value of your 401(k) contributions.

Calculating

the

Future

Value

of

an

Annuity:

An

IRA

Assuming $ annual contributions with 9% return, how much will an IRA be worth in 30 years? FV n = PMT (FVIFA i, n ) FV 30 = $ (FVIFA 9%, yr ) FV 30 = $ (136.305) FV 30 = $272,

Present

Value

of

an

Annuity

Equation

(cont’d)

This equation is used to determine the present value of a future stream of payments, such as your pension fund or insurance benefits.

Calculating

Present

Value

of

an

Annuity:

Now

or

Wait?

What is the present value of the 25 annual payments of $50, offered to the soon ‐ to ‐ be ex ‐ wife, assuming a 5% discount rate? PV = PMT (PVIFA i,n ) PV = $50, (PVIFA 5% , 25 ) PV = $50, (14.094) PV = $704,

Buying

a

Car

With

Four

Easy

Annual

Installments

What are the annual payments to repay $6, at 15% interest? PV = PMT(PVIFA i%,n yr ) $6, = PMT (PVIFA 15%, 4 yr ) $6, = PMT (2.855) $2,101. = PMT

Perpetuities

Definition

an annuity that lasts forever

PV

PP

i

PV

the present value of the perpetuity - PP = the annual dollar amount provided by the perpetuity - i = the annual interest (or discount) rate

Summary

(cont’d)

Annuity

a periodic series of equal payments for a specific length of time

Future value of an annuity

the value, in the future, of a current stream of investments

Present value of an annuity

today’s value of a stream of investments received in the future

Summary

(cont’d)

Amortized loans

loans paid in equal periodic installments for a specific length of time

Perpetuities

annuities that continue forever