Accounting

Principles of Managerial Finance Solution

Lawrence J. Gitman

PART

2

Important Financial Concepts

CHAPTERS IN THIS PART

4 5 6 7

Time Value of Money Risk and Return Interest Rates and Bond Valuation Stock Valuation

INTEGRATIVE CASE 2: ENCORE INTERNATIONAL

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Chapter 4 Time Value of Money

CHAPTER 4

Time Value of Money INSTRUCTOR’S RESOURCES

Overview This chapter introduces an important financial concept: the time value of money. The present value and future value of a sum, as well as the present and future values of an annuity, are explained. Special applications of the concepts include intra-year compounding, mixed cash flow streams, mixed cash flows with an embedded annuity, perpetuities, deposits to accumulate a future sum, and loan amortization. Numerous business and personal financial applications are used as examples.

PMF DISK PMF Tutor: Time Value of Money Time value of money problems included in the PMF Tutor are future value (single amount), present value (single amount and mixed stream), present and future value annuities, loan amortization, and deposits to accumulate a sum. PMF Problem-Solver: Time Value of Money This module will allow the student to compute the worth of money under three scenarios: 1) single payment, 2) annuities, 3) mixed stream. These routines may also be used to amortize a loan or estimate growth rates. PMF Templates Spreadsheet templates are provided for the following problems: Problem Self-Test 1 Self-Test 2 Self-Test 3 Self-Test 4 Study Guide The following Study Guide examples are suggested for classroom presentation: Example 5 6 10 Topic More on annuities Loan amortization Effective rate

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Topic Future values for various compounding frequencies Future value of annuities Present value of lump sums and streams Deposits needed to accumulate a future sum

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