Finance Cheat Sheet Essay

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Calculator Functions: • Payments at Beginning of Year: 2nd, PMT, 2nd, Enter (BEG) • Payments at End of Year: 2nd, PMT, 2nd, Enter (END) • Enter money leaving you as negative number, Negative Cash Flow • Enter money coming to you as positive number, Positive Cash Flow Present Value: • What is it worth today? Future Value: • You compound a sum of money invested today (PV) at appropriate interest rate to find it value in the future. Annuity (Ordinary): • Payments are made at End of each period. • FV: The amount you accumulate by depositing equal dollar amounts at specific intervals. • Variables: PV, FV, N, I, PMT Annuity Due: • Payments are made at Beginning of each period. [2nd, PMT, 2nd, Enter(BEG)] • Difference between (OA) and (AD) is cash flows will occur One Period Sooner, hence there is One Extra period of compounding in (AD) • A factor of (1+i) with (AD) Compound Interest: • Earn Interest on Principle and accumulated Interest Lump Sum: • Variables: FV, PV, N, I • EX: How many years would it take for Bubba to see his initial investment of $2500 grow to $10000 at an interest rate of 10% Rule of 72: • Double your investment • I x N = 72 Compounding More than Once Per Year: • Bonds: Semi-Annual Interest PMT • Mortgage/Car Loans: Monthly PMT • Adjust the Value of ‘N’ and ‘I’ to reflect the frequency of compounding. • EX: 5 years, 12% interest rate, compounded monthly o N=60 I=1% o I/Y= (Int/12) N= (Yrs x 12) • More frequent the compounding, the larger the amount you accumulate over time. Continuous Compounding: • Effective Rate of Interest= (ei – 1) x 100 o Given a fixed interest rate, continuous compounding provides highest effective interest rate • FV= PV(ein ) • PV= FV/(ein ) • I= interest rate expressed as a decimal, 15%, would be .15 • N= number of years Perpetuity: • Cash flow occurs at specific intervals forever

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