06-25-2020, 01:58 AM
An exctract from Financial Math on Spreadsheet and Calculator, © 2002 Kent L. Womack & Andrew Brownell, Tuck School of Business, Dartmouth College, Version 4.0, 22 pages
Abstract
First graduate-level finance courses in investments or corporate finance often presuppose knowledge of the first essential finance paradigm: time value of money (TVM). Yet, many incoming MBAs do not know the concept and need to get up the learning curve quickly on how to calculate present and future values of single cash flows and annuities. This tutorial attempts to link the mathematical concepts (and their equations) to step-by-step calculating steps a student needs to learn on both spreadsheet and calculator. It has been used with success as a self-contained, pre-course tutorial that takes the typical student 2-3 hours to complete. Additional practice problems with worked out answers are also included.
Table of Contents
INTRODUCTION .....................................................................................1
PERFORMING TVM CALCULATIONS—THE GENERAL FRAMEWORK ........................2
CALCULATING FUTURE VALUE ....................................................................3
COMPOUNDING MULTIPLE TIMES PER YEAR .................................................4
CALCULATING PRESENT VALUE ..................................................................5
CALCULATING THE INTEREST RATE (OR, THE DISCOUNT RATE) .......................7
CALCULATING THE FUTURE VALUE OF AN ANNUITY .......................................8
CALCULATING THE PRESENT VALUE OF AN ANNUITY ......................................9
CALCULATING THE PRESENT VALUE OF A PERPETUITY ..................................10
CALCULATING THE PRESENT VALUE OF A GROWING PERPETUITY ....................11
CALCULATING THE PRESENT VALUE OF A GROWING ANNUITY ........................12
ADVANCED APPLICATION: PRICING BONDS .................................................14
PRACTICE PROBLEMS .............................................................................19
PRACTICE PROBLEM ANSWERS ................................................................20
Key sequences for the HP-12C, HP-17B and Excel are included in each section.
BEST!
SlideRule
Abstract
First graduate-level finance courses in investments or corporate finance often presuppose knowledge of the first essential finance paradigm: time value of money (TVM). Yet, many incoming MBAs do not know the concept and need to get up the learning curve quickly on how to calculate present and future values of single cash flows and annuities. This tutorial attempts to link the mathematical concepts (and their equations) to step-by-step calculating steps a student needs to learn on both spreadsheet and calculator. It has been used with success as a self-contained, pre-course tutorial that takes the typical student 2-3 hours to complete. Additional practice problems with worked out answers are also included.
Table of Contents
INTRODUCTION .....................................................................................1
PERFORMING TVM CALCULATIONS—THE GENERAL FRAMEWORK ........................2
CALCULATING FUTURE VALUE ....................................................................3
COMPOUNDING MULTIPLE TIMES PER YEAR .................................................4
CALCULATING PRESENT VALUE ..................................................................5
CALCULATING THE INTEREST RATE (OR, THE DISCOUNT RATE) .......................7
CALCULATING THE FUTURE VALUE OF AN ANNUITY .......................................8
CALCULATING THE PRESENT VALUE OF AN ANNUITY ......................................9
CALCULATING THE PRESENT VALUE OF A PERPETUITY ..................................10
CALCULATING THE PRESENT VALUE OF A GROWING PERPETUITY ....................11
CALCULATING THE PRESENT VALUE OF A GROWING ANNUITY ........................12
ADVANCED APPLICATION: PRICING BONDS .................................................14
PRACTICE PROBLEMS .............................................................................19
PRACTICE PROBLEM ANSWERS ................................................................20
Key sequences for the HP-12C, HP-17B and Excel are included in each section.
BEST!
SlideRule