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- Texas
- University of Texas - Austin
- Spanish And Portuguese
- Spanish And Portuguese 328c
- No Se
- Finance

Anonymous

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141
Assume I invest $100 and I earn 0% interest. What will my investment be worth in five years time?

Without interest, the value of the investment stays constant (PV & FV are the same)

Assume I invest $100 and I earn 12% simple interest each year. what will my investment be worth in five years time?

Annual Interest is $100 x 12% = $12.00. Simple interest increases the future value to $160 (simple interest is linear)

What happens if we compound?

Means that the interest rate is applied to the previous year's principal and interest combined. (I'm earning interest on interest)

Compound interest is

exponential

Calculating Future Values

FV = PV x (1 + rate per period)# of periods

What if compounding occurs monthly? How many compounding periods are there?

12 compounding periods per year

The more frequent the compounding...

Each payment earns

Lump sums

An annuity is a series of equal payments, equally spaced in time:

if you make 10 additional deposits, how much will you have on your 65th birthday?

If i make monthly deposits for 48 years, how much must each deposit be?

Compounding review:

Discounting is the opposite of compounding

What if we discount monthly?

Integrative example: Retirement planning

how long will you be retired?

A loan is the PV of an annuity

How can I tell how much of each payment is principal and how much is interest?

Depreciation

Amortization

Depletion

Create an amortization schedule

An amortization schedule shows how

A shorter loan results in

Rates a 30- year and 15- year loan will differ because

What are points?

fixed rate loans

Variable rate loans (adjustable rate mortgages or ARM's)

How much house can you afford?

How lenders evaluate mortgage loan applications

Loan-to-value ratio

Front-end ratio

Back-end ratio

He will make a down payment of $50,000

He will borrow $200,000 @ 5.5% for 30 years

His gross salary is $75,000 per year

Property taxes are $6,000 per year

Homeownerâ€™s insurance costs $1,200 per year

His car loan, student loan & credit card payments total $1,475 per month
. Should he buy the house

how much will you end up paying for the house if you use a 30-year mortgage?

what are the pros and cons of using a 15-year versus a 30-year fixed rate mortgage?

What were the average closing costs on a $200,000 loan in Texas?

The number prior excludes title insurance which must also be paid at closing.

What does foreclosure mean? How is it different from returning a property to the lender?

Why might a mall owner choose to return property to the lender and/or be foreclosed upon?

What is a mortgage-backed security?

If a mall closes, what is the impact on the values of the other properties near the mall? Why?

- How to develop a lifetime portfolio

Determine your net worth

Determine your Net Worth

Determine your net worth

Contribute to your 401(k) plan

Traditional 401(k) plans:

Roth 401(k) plans:

Contribute to your 401(k) plan

Which mutual fund should you select?

look for the following features in each mutual fund you choose

Paying off expensive debt

Paying off expensive debt

Build up a cash reserve

Save for other goals

save for other goals

save for other goals

Recommended asset allocations

avoid being defrauded

avoid being defrauded: pyramid scheme

avoid being defrauded: ponzi scheme

avoid being defrauded

Bonds provide investors with future cash flows

Bonds are subject to two rates

What is the whole bond worth?

Bond values change over time

bonds are exposed to interest rate risk (maturity risk)

When companies generate cash from operation, they can:

Dividends and repurchases convert information to investors

Companies rarely decrease dividend payments

Yield?

a stock's yield can be separated into two components

Growth stocks are characterized by

income stocks are characterized by

Many stock valuation models exist

When people say "technology" stocks which companies are they talking about?

why do growth stocks typically avoid paying dividends?

why do income stocks pay dividends?

what percent of non-tech companies in the S&P 500 pay dividends to their shareholders?

Every firm has a capital structure

pre-tax versus after-tax

WACC

WACC

Which capital structure is best?

Operating

Capital Budget

Operating and capital planning

Independent projects

mutually exclusive

replacement project

expansion project

Which cash flows are relevant?

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