1. Our first discussion topic is about Time Value of Money (TVM). The TVM concepts you will learn this week will be applied to most all future course concepts and analysis. For example, we will use the approaches below for security valuation - valuing stocks, bonds and options, capital budget analysis and business valuation - valuing uneven cash flows, and the concept of corporate valuation.
1) Present value of a single future sum
How much will you pay today to receive a lump sum in the future?
How much must I have saved today to cover a future expense (college, wedding, trip)?
2) Present value of an annuity
How much will you pay today to receive an annuity in the future (retirement income, business income, sell a business for an annuity stream)?
3) Future value of a single deposit made today
How much will this deposit be worth in x years?
4) Future value of an annuity
If I save x amount each year, how much will I have accumulated in y years?
5) Uneven cash flow streams
What is the value of the following stream of cash flows resulting from my investment?
Please discuss each of the above concepts for TVM and illustrate your points with examples. If you are using financial calculators, tell us which buttons do you need to press to get the answers. Thanks. (300 words)
2. We focus on some of the assumptions behind the TVM calculations. What are those? How do these assumptions limit our application of these calculations?