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1.1
Subject Administration
Lecturers:
Tutor in Charge:
Robert Carey
Online tutor
1.2
Lecture 1 12
Lecture
1
Date
Tuesday, 29 July
Topic(s)
Introduction to Business Finance
Introduction to Financial Mathematics I
Thursday, 31 July
Tuesday, 5 August
Thursday, 7 August
Tuesday, 12 August
Thursday, 14 August
Tuesday, 19 August
Thursday, 21 August
Tuesday, 26 August
10
Thursday, 28 August
11
Tuesday, 2 September
12
Thursday, 4 September
Lecture 13 - 24
13
Tuesday, 9 September
Capital Budgeting I
14
Thursday, 11 September
Capital Budgeting II
15
Tuesday, 16 September
16
Thursday, 18 September
17
Tuesday, 23 September
Capital Budgeting IV
18
Thursday, 25 September
Tuesday, 7 October
20
Thursday, 9 October
21
Tuesday, 14 October
22
Thursday, 16 October
23
Tuesday, 21 October
24
Thursday, 23 October
Subject Administration
Subject Administration
Required Textbook
Peirson, G., Brown, R., Easton, S., Howard, P. and Pinder, S.,
Business Finance, 11th or 10th ed., McGraw-Hill/Irwin (referred
to as PBEHP)
1.6
1.7
Bachelor of Commerce
Current Position:
1.8
Subject Objectives
1.10
Lecture 1
PBEHP (10th or 11th ed.), Ch. 1 and Ch. 3 (sections 3.1 3.4.2)
Lecture 2
1.11
This Subject
Financial management
Financial intermediaries
Securities markets
Government entities
Not-for-profit organizations
Personal financial planning
1.15
Firm Value =
t =1
(1 + r )
E ( CFt )
Simple interest
Compound interest
Compounded
interest
Difference
$1,080.00
$1,080.00
$0.00
$1,160.00
$1,166.40
$6.40
$1,240.00
$1,259.71
$19.71
$1,320.00
$1,360.49
$40.49
$1,400.00
$1,469.33
$69.33
20
$2,600.00
$4,660.96
$2,060.96
50
$5,000.00
$46,901.61
$41,901.61
100
$9,000.00
$2,199,761.26
$2,190,761.26
End of year
1.19
P0
Cash flows occur at the end of the period
1.20
At r = 8% p.a.
10%
Future Value
$6,000
$5,000
8%
$4,000
$3,000
6%
$2,000
4%
$1,000
0
10
12
14
16
18
20
End of Year
1.22
P0 = Fn/(1 + r)n
Cash flows occur at the end of the period
1.23
1.24
Present Value
$10,000
$9,000
$8,000
$7,000
$6,000
$5,000
4%
$4,000
$3,000
6%
8%
10%
$2,000
$1,000
$0
0
10
12
14
16
18
20
1.25
P0 = $10,000, F5 = $20,000, n = 5
1.27
10000(1.10)n = 30000
So, (1.10)n = 30000/10000 = 3.00
Taking natural logs we have
n ln(1.10) = ln(3.00)
So, n = 1.0986/0.0953 = 11.5 years
1.28
Key Concepts
1.29
Formula Sheet
P0 = Fn/(1 + n r)
Fn = P0(1 + n r)
Fn = P0(1 + r)n
P0 = Fn/(1 + r)n
P0 = Fn(1 + r)-n
(Note: The formula sheets on the mid semester and final exams will
contain all the formulas covered in lectures but without the descriptions)
1.30