Dq week 3

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The projected amount and timing of cash flows received from an investment impacts the value

of that investment. The longer it takes to receive a payment, the less valuable it is to the

investor today. The key to comparing different investments is to determine the value of each

investment in today’s terms. Every investment can be valued in today’s terms using time value

of money mathematics. For this discussion forum, you will practice calculating the value of cash

flows using the principles of time value of money mathematics.

Time value of money concepts and math form the cornerstone of finance. This discussion is an

opportunity for you to practice using these formulas and to progress in your understanding of

this important topic. You will use these concepts later in this course, in other finance courses,

and throughout a career in finance. Like many concepts, each time you work with time value of

money problems you may develop a slightly different, deeper, and more thorough

understanding of the theory. Some of you may be quite comfortable using these formulas,

while others may need to spend extra time focusing on the mathematics. However, all of you

can progress in your abilities through this discussion activity.

Prepare:

Prior to beginning work on this discussion forum,

• Read Chapter 4 of Essentials of finance.

• Complete the Week 3 – Learning Activity 1.

• Review the Solving Time Value Money Problems Using Google Calculator (Links to an

external site.) handout.

Calculate:

• Calculate a time value of money problem, according to first letter of your last name, and

the equation provided for each problem. The equations listed are in the textbook

throughout Chapter 4 using the notations 4.XX for each formula, and in the Chapter 4

Summary.

Compute the present value of annual cash payments of $600 per year, for 3 years, using a discount rate of 8%.

Equation 4.16: PV0=CF1(1+r)1+CF2(1+r)2+…CFn(1+r)n

Need help with your calculations? Check out the videos included in this resource: Week 3

Discussion Help (Links to an external site.).

Write:

• Write out each step you used to solve the problem you were assigned, and provide the

solution to the problem as well.

o Present your final solution as a decimal approximation carried out to the second

decimal point (e.g., $000.00).

• Explain the meaning of the problem and your solution in your own words.

• Explain your answers to the following questions:

o If the rate in the problem was higher, would the solution be higher or lower?

o If the time period in the problem was shorter, would the solution be higher or

lower?

• Describe an element of this problem that was challenging to you.

• Ask at least one question about time value of money mathematics.