Fin 301 Exam 2 2026 Due 17th April With Success Guaranteed
solving for the interest rate (r)Answerr = (fv/pv)^(1/n) -1
future valueAnswerFV = PVx(1+r)^n
solving for the number of periods (n)Answern = (ln(fv/pv)) / (ln(1+r))
3 rules of time travelAnswer1. only values at the same point in time can be compared or combined
2. to move a cash flow forward in time you must compound it
3. to move a cash flow backward in time you must discount it
stream of cash flowsAnswermultiple cash flows (multiple payments/desposits)
-labeled as Cn of CFn (where n indicates the time period where the cash flow occurs) (0 is for today)
solution 1: future value of multiple cash flowsAnswer1. calculate FV1 for the $1000 in year zero (today)
-once we have compounded forward to year 1, we can add it to the $_ we will deposit in year 1
-take that value as the new present value and solve for the next years future value
-need them to be in the same time frame
solution 2: future value of multiple cash flowsAnswer-find out how much it is worth in year 3
1. calculate FV3 for the $_ in year zero compounding it directly into year 3
2. calculate FV2 for the $_ in year 1, compounding it directly into year 3
3. calculate FV1 for the $_ in year 2, compounding it directly into year 3
4. sum all these values up
why both methods give the same answerAnswer-in the first solution we moved values one year at a
time
-in the second solution we moved values to the final year
, **its all about making sure values are in the same time period**
present value of a lump sumAnswerPV = FVn / (1+r)^n
present value of multiple cash flowsAnswer-find the present value of CF1, CF2, CF3
-sum up the present value of all of the cash flows
relating present and future valueAnswer-present value and future value are pretty much opposites
-as long as you obey the first rule of time travel, you can use the present value to solve for the future
value
-solve for the future value of CF0 in year 3
-get the same answer either way
valuationAnswerdetermining what something is worth in the present
present value simplified equationAnswer
net present valueAnswersubtract initial cost from the present value of future cash flows
cost (will be negative) + present value of the cash flow stream
npv ruleAnswerif the npv of a project or investment is positive then it is a good project/investment
perpetuityAnswerwhen a constant cash flow will occur forever
-constant cash flow = same forever
-the timing of the cash flow is important - when dealing with perpetuities we assume that the first cash
flow occurs in year 1
present value of a perpetuityAnswerpv = inf sum n=1 CF/(1+r)^n
PVperp = CF/r
solving for the interest rate (r)Answerr = (fv/pv)^(1/n) -1
future valueAnswerFV = PVx(1+r)^n
solving for the number of periods (n)Answern = (ln(fv/pv)) / (ln(1+r))
3 rules of time travelAnswer1. only values at the same point in time can be compared or combined
2. to move a cash flow forward in time you must compound it
3. to move a cash flow backward in time you must discount it
stream of cash flowsAnswermultiple cash flows (multiple payments/desposits)
-labeled as Cn of CFn (where n indicates the time period where the cash flow occurs) (0 is for today)
solution 1: future value of multiple cash flowsAnswer1. calculate FV1 for the $1000 in year zero (today)
-once we have compounded forward to year 1, we can add it to the $_ we will deposit in year 1
-take that value as the new present value and solve for the next years future value
-need them to be in the same time frame
solution 2: future value of multiple cash flowsAnswer-find out how much it is worth in year 3
1. calculate FV3 for the $_ in year zero compounding it directly into year 3
2. calculate FV2 for the $_ in year 1, compounding it directly into year 3
3. calculate FV1 for the $_ in year 2, compounding it directly into year 3
4. sum all these values up
why both methods give the same answerAnswer-in the first solution we moved values one year at a
time
-in the second solution we moved values to the final year
, **its all about making sure values are in the same time period**
present value of a lump sumAnswerPV = FVn / (1+r)^n
present value of multiple cash flowsAnswer-find the present value of CF1, CF2, CF3
-sum up the present value of all of the cash flows
relating present and future valueAnswer-present value and future value are pretty much opposites
-as long as you obey the first rule of time travel, you can use the present value to solve for the future
value
-solve for the future value of CF0 in year 3
-get the same answer either way
valuationAnswerdetermining what something is worth in the present
present value simplified equationAnswer
net present valueAnswersubtract initial cost from the present value of future cash flows
cost (will be negative) + present value of the cash flow stream
npv ruleAnswerif the npv of a project or investment is positive then it is a good project/investment
perpetuityAnswerwhen a constant cash flow will occur forever
-constant cash flow = same forever
-the timing of the cash flow is important - when dealing with perpetuities we assume that the first cash
flow occurs in year 1
present value of a perpetuityAnswerpv = inf sum n=1 CF/(1+r)^n
PVperp = CF/r
