• Time Value of Money – Ch.’s 5&6
o Lump Sum Formula Problems – formula on formula sheet or use financial
calculator
Solve for FV (compound interest)
Solve for PV (discounted)
Solve for i (solve for rate of return or change)
• For example, for change in home price or change in some number
such as sales for a company
Solve for N (how long it takes in periods for a given change or growth to
take place)
• Be sure and read test problem – if it asks for years, for example,
don’t forget to convert to number of years – don’t forget that the
“i” and the “n” have to match – correspond to the same period
Know how to do lump-sum problems, if the compounding is not annual –
for example, semi-annual, quarterly, monthly, etc.
o Know how to calculate the APR vs EAR – formula on sheet or use financial
calculator
If you are comparing 2 or more investment opportunities, you always
want the higher effective rate (use EAR as a comparison - not APR)
If you are comparing loan rates (when you are borrowing money), you
obviously want the lower effective rate
o Perpetuity – the “C/i” formula is not given explicitly on the formula sheet – you
will have to know it, but it’s simple – also, the “C/i” shows up in the annuity
formulas on formula sheet – may jog your memory
You will not see any “delayed” perpetuities on exam
o Multiple lump-sums
Either PV or FV of multiple (differing) lump-sums – as opposed to annuity,
where the cash flows are all the same
Just calculate either the PV or FV of each one separately and then sum
them up
o Annuities – finite number of equal payments (or, cash flows)
“ordinary annuity” – when payments are at end of period – means that
the 1st payment occurs at t=1 (end of 1st payment period) – most
FIN 300 – Exam 1 – “Homestretch” Checklist
Here is a list of problem types and issues that you might see – by the way, this is nothing new
relative to what we have talked about in class (or the topics and types of calculations presented
in my lecture slides) – it’s just a recap
common case – assume that payments are end of month, unless
otherwise specified
“annuity due” – when payments are at beginning of the period – means
1st payment occurs immediately (or today, t=0) – last payment occurs at
the beginning of last period
Annuity equations – given on formula sheet – or you may use the
financial calculator
• PV ordinary annuity – common problem types
o Solve for loan payment (PMT)
o Solve for loan balance (PV)
o Solve for interest or principal amount
On test, would only be asked for those portions of
1st payment
o Solve for N (as in “credit card” example)
o Or, you could be given an investment or asset that pays a
set of future repeated payments – the value or price of
that investment or asset is the PV
• FV ordinary annuity - common problem types
o Solve for FV (such as amount of retirement ending
nestegg, given what you contribute or save each period)
o Solve for necessary payment, given the future targeted FV
• FV annuity due – we do the same examples (as those for the FV
ordinary annuity case) – except the payments were made at the
beginning of each period
• PV of annuity due – not as common – but use as you would for PV
of ordinary annuity; however, payments are received (or made) at
beginning of period
• Bonds – Chapter 8
o The only bond material covered on Exam 1 will include Slides #13 to the end - on
the 2nd Bond (Chapter 8) Slides
o Calculate the price of a zero-coupon bond (just the PV of a lump-sum
investment)
o Calculate the Yield (to Maturity), or YTM, of a zero-coupon bond (just the
discount rate, or “I”, of a lump-sum investment)
o Note that all of the zero-coupon bonds that we will see will use annual
compounding
o Also, note that the so-called “Face,” or “Par” Value is just the single lump-sum
payment received at the bond’s maturity (end of the bond’s life)
o Miscellany
Financial calculator
• Watch “END” vs. “BEG” setting – for “ordinary” or “due”
• Careful with P/Y=C/Y (I normally keep that set to 1 and I take the
APR and divide by number of periods)
All calculators – careful with rounding – just go ahead and make sure that
your display has at least 4 decimal places, to be safe
All Exam 1 problems will be quantitative
• You won’t have any definitions, vocabulary, glossary, etc.
questions
• Focus on solving problems in your review
o Replicate our in-class (lecture slide) example answers
o Wiley Plus assignments
Ignore any “continuously compounding” portions
of problems
o Old quiz for time value (Ch. 5-6) has answers and solutions
posted – works through most of the problem types in
time-value – posted w/”Additional Practice Problems
(PDF)” in Blackboard menu
o Old quiz (posted w/”Additional Practice Problems (PDF)”
on Blackboard) for “bonds and inflation” – just do the
zero-coupon practice! (Problems #4 & #5)
o Reminders
Bring plenty of pencils!
Bring a calculator - but you can’t use a smartphone/tablet app
• Financial calculators as TI 83/84, BAII+, etc., etc. OK, as I’ve said
Bring your ASU ID
Please don’t bring any paper – I will give you space on exam and the
formulas – no paper is brought in & no paper goes out the door
Put all other backpacks, bags, laptops at side/front of room
