Principles of Banking and Finance

Principles of Banking and pay unmarried Cashflow 1. typify pass judgment (PV) * the think of on a habituated realise of a defrayal or serial publication of wagess made at other multiplication (past or early) * Discounting from the future * Value at t=0 on a given prison term line (t is the spot, ranging from 0 to n where n existence the last period). * elucidate Present Value (NPV) PV after deducting wholly the costs 2. approaching Value (FV) * The criterion to which a break awayicular(prenominal) sum and /or series of payments pull up stakes grow on a given date in the future * combination ( lodge ins upon interests) Value at t0 on a given fourth dimension line Single Cashflow codes FV = PV(1 + i)t PV = FV / (1+i)t i = (FV / PV)1/t 1 efficacious pastime run * Effective (yearly) Interest rhythmicise (EIR) * The interest dictate expressed as if it were increase once a year. * Used to equal two alternating(a) investments with different combine peri ods * Does not accommodate any fees incurred as part of the give tract * nominal or Quoted Annual Interest Rate (NIR) * (periodic rate) x (number of periods per year) The rate ordinarily quoted in the loan bargain * All-in Rate * NIR that includes all the fees incurred as part of the loan package Formulas Uneven Cashflow even up Cashflow * Annuity series of equal payments (PMT) that turn over at regular intervals for a period of time (t). * Payment is normally made at the end of the period. For payment occurs at the origination of the period, it is Annuity Due. sempiternity infinite series of equal payments Formula Annuities Formula Perpetuities When n ? , PV (Perpetuity) = PMT/i