# Summary 2 Financial Markets

##### Course
- IFM
- 2021 - 2022
176 Flashcards & Notes
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• ## 4.1 The Timeline

• What are the two types of cashflows?
Inflows (positive) and outflows (negative -)
• Give the timeline of this situation: ou have to pay 10.000\$ tuition fee over 2 years; the payments must be made at the start of each semester
Timeline:
• ## 4.2 The Three Rules of Time Travel

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• What are the three rules of time travel?
Rule 1: Only value at the same pint in time can be compared or combined.
Rule 2: To move cash flows forward in time you must compound it. (Future value)
Rule 3: to move a cash flow backward in time, you must discount it. (Present value)
• Suppose you invest \$1000 in an account paying 10% interest rate per year. How much will you have on your account in 7 years? 20 years? 75 years?
7 years: \$ 1 948.72
20 years: \$ 6 727.50
75 years: \$ 1 271 895.37
• You have the choice between \$ 5 000 today (interest rate 10%) and \$ 10 000 in five years, what do you choose?
The \$ 5 000, they will be worth \$ 12 968.71 in 10 years
• If a bond will be worth \$15 000 in 10 years with an interest rate of 6%, how much is it worth today?
\$ 8 375.92
• Suppose we plan to save \$1000 today, and
\$1000 at the end of each of the next two years.
If we can earn a fixed 10% interest rate on our
savings, how much will we have three years
from today?
\$ 3 641
• How much is \$ 10 000 in 5 years with 10ù interest rate worth today? And \$ 5000 now worth in 5 years? And together that is?
\$ 6 209
\$ 8 053
• ## 4.3 Valuing a Stream of Cash Flows

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• You lend money and think you will be able to pay \$5000 the first year and \$ 8 000 the next 3 years. If the financier would otherwise earn 6% per year on his savings, how much can you borrow from him now?
\$ 24 890.65
• ## 4.4 Calculating the Net Present Value

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