4-5PG ESSAY 750–1000 words with proper citation of sources. (The Course Book is: "Fundamentals of Financial Management": Concise, 10th Edition, ISBN: 978-1-337-90257-1).

MGNT 3200, Fall 2020, Plan for Chapter 5

Time Value of Money is the most important concept in an introductory finance class . There’s virtually no area of finance which doesn’t somehow relate to the time value of money. If you have a reasonable understanding of why this is so by the time we’re finished, then I will consider your study of chapter 5 to be a success. For that reason, I’m especially interested in the first of the text’s learning objectives:

· Explain how the time value of money works and discuss why it is such an important concept in finance.

We can accomplish that objective only by getting a firm overview of definitions and actual monetary values. For that reason, we’ll also focus on the following learning objectives:

· Calculate the present value and future value of lump sums.

· Identify the different types of annuities, calculate the present value and future value of both an ordinary annuity and an annuity due, and calculate the relevant annuity payments.

· Explain the difference between nominal, periodic, and effective interest rates. An understanding of these concepts is necessary when comparing rates of returns on alternative investments.

· Discuss the basics of loan amortization and develop a loan amortization schedule that you might use when considering an auto loan or home mortgage loan.

We will not worry about computations involving uneven cash flow streams.

Additionally, we will introduce the concepts of net present value and internal rate or return, which are covered in chapter 11.

The chapter is very heavy on calculations, but I will try to emphasize concepts over calculations, and we will learn how to do the necessary calculations on an Excel spreadsheet; therefore, you will find it very useful to have a device running an Excel spreadsheet both in class and while watching videos. Each of you will use Excel to complete your own unique worksheet on interest rates and mortgage loans.

You will not need to do computations on the test or exam, which will emphasize use and interpretation of concepts. Therefore, you need not focus on computational sections of the text other than some simple interest rate formulas unless you plan on going further in finance. We will do calculations using Excel functions, which you’ll find described at various points in the text.

I intend to cover the following sections of the text. I recommend that you ensure that you understand both the meaning and the use of each of the following concepts.

Week 9 Online Instruction ( Oct. 14-19)

5-1: Time Lines

5-2: Future Values

Class on Oct. 19

5-3: Present Values

5-6: Annuities

5-7: Future Value of an Ordinary Annuity

5-9: Present Value of an Ordinary Annuity

Week 11 Online Instruction ( Oct 19-Oct. 26)

11-2: Net Present Value

11-3: Internal Rate of Return

Class on Oct. 26

5-10A: Finding Annuity Payments

5-18: Amortized Loans