FAC1602 ASSIGNMENT 5 FINAL PAPER 2026
QUESTIONS WITH COMPLETE SOLUTIONS
GRADED A+
◉ Time Value of Money. Answer: - 100 dollars today does not have
the same value as 100 dollars in a year
- put money in the bank and earn the 1-year risk-free rate
- this leads us to the Discounted Cash Flow Analysis (DCF)
◉ DCF. Answer: Discounted Cash Flow Analysis:
-most basic and most widely used too for financial modeling
-Converting future cash flows into present value equivalents so that
cash flows at different points in time can be compared.
*usually there is more than one way to do things- e.g., writing own
formulas in Excel vs. Excel built-in functions. Depends on situation
as too which is better.
◉ Future Value (of a Lump Sum). Answer: FV = Present Cash Flow x
(1+r)^t
- $100 in the bank today at 10% interest
,- after 1-year: 100 + 100*0.10 = $110 = 100 * (1.10)
- after 2-years: 110 + 110*0.10 = $121 = 110 * (1.10)
- so, 100*(1+.10)*(1.10) = 100 * (1.10)^2 = $121
◉ Present Value of a Lump Sum. Answer: PV = Future Cash Flow /
(1+r)^t
- Present Value $121, 2-years, discount factor 10%
- =$100
- In other words, you need to deposit $100 today to get $121 in two
years.
◉ Relationship Between Interest Rates and Present and Future
Values. Answer: Present Value = decreasing interest rates
Future Value = increasing interest rates
◉ Present Value of Annuity. Answer: PV = PMT SUM(t,
j=1)[1/(1+r)]^j=PMT x [1-(1+i)^-t/1]
- PMT = periodic annuity payment
,The present value of a finite series of equal cash flows received on
the last day of equal intervals throughout the investment horizon.
◉ Future Value of Annuity. Answer: FVt = PMT SUM(t-1, j=0) =
(1+r)^j = PMT x [(1+i)^t-1 / i]
- PMT = periodic annuity payment
The future value of a finite series of equal cash flows received on the
last day of equal intervals throughout the investment horizon.
◉ Financial Calculator. Answer: -CFA exams require the sole usage of
a financial calculator
-Common Financial Calculator: Texas Instruments BA II Plus
-Key inputs/outputs (solve for one of five)
N = number of compounding periods
I/Y = annual interest rate
PV = present value (i.e. current price)
PMT = a constant payment every period
, FV = future value (i.e. future price)
◉ Perpetuity. Answer: PV of Perpetuity = D / r
A perpetuity is a type of annuity that receives an infinite amount of
period payments.
As with any annuity, the perpetuity value formula sums the present
value of future cash flows.
◉ NPV. Answer: Net Present Value
NPV = CFo + SUM(n,t=1) CFt / (1+r)^t
Convention is that cash inflows are positive in sigh and cash
outflows are negative in sign.
In capital budgeting, a positive NPV means that the project is worth
taking. The present value of the cash inflows is greater than the
present value of the cash outflows.
◉ IRR. Answer: Internal Rate of Return (IRR)
QUESTIONS WITH COMPLETE SOLUTIONS
GRADED A+
◉ Time Value of Money. Answer: - 100 dollars today does not have
the same value as 100 dollars in a year
- put money in the bank and earn the 1-year risk-free rate
- this leads us to the Discounted Cash Flow Analysis (DCF)
◉ DCF. Answer: Discounted Cash Flow Analysis:
-most basic and most widely used too for financial modeling
-Converting future cash flows into present value equivalents so that
cash flows at different points in time can be compared.
*usually there is more than one way to do things- e.g., writing own
formulas in Excel vs. Excel built-in functions. Depends on situation
as too which is better.
◉ Future Value (of a Lump Sum). Answer: FV = Present Cash Flow x
(1+r)^t
- $100 in the bank today at 10% interest
,- after 1-year: 100 + 100*0.10 = $110 = 100 * (1.10)
- after 2-years: 110 + 110*0.10 = $121 = 110 * (1.10)
- so, 100*(1+.10)*(1.10) = 100 * (1.10)^2 = $121
◉ Present Value of a Lump Sum. Answer: PV = Future Cash Flow /
(1+r)^t
- Present Value $121, 2-years, discount factor 10%
- =$100
- In other words, you need to deposit $100 today to get $121 in two
years.
◉ Relationship Between Interest Rates and Present and Future
Values. Answer: Present Value = decreasing interest rates
Future Value = increasing interest rates
◉ Present Value of Annuity. Answer: PV = PMT SUM(t,
j=1)[1/(1+r)]^j=PMT x [1-(1+i)^-t/1]
- PMT = periodic annuity payment
,The present value of a finite series of equal cash flows received on
the last day of equal intervals throughout the investment horizon.
◉ Future Value of Annuity. Answer: FVt = PMT SUM(t-1, j=0) =
(1+r)^j = PMT x [(1+i)^t-1 / i]
- PMT = periodic annuity payment
The future value of a finite series of equal cash flows received on the
last day of equal intervals throughout the investment horizon.
◉ Financial Calculator. Answer: -CFA exams require the sole usage of
a financial calculator
-Common Financial Calculator: Texas Instruments BA II Plus
-Key inputs/outputs (solve for one of five)
N = number of compounding periods
I/Y = annual interest rate
PV = present value (i.e. current price)
PMT = a constant payment every period
, FV = future value (i.e. future price)
◉ Perpetuity. Answer: PV of Perpetuity = D / r
A perpetuity is a type of annuity that receives an infinite amount of
period payments.
As with any annuity, the perpetuity value formula sums the present
value of future cash flows.
◉ NPV. Answer: Net Present Value
NPV = CFo + SUM(n,t=1) CFt / (1+r)^t
Convention is that cash inflows are positive in sigh and cash
outflows are negative in sign.
In capital budgeting, a positive NPV means that the project is worth
taking. The present value of the cash inflows is greater than the
present value of the cash outflows.
◉ IRR. Answer: Internal Rate of Return (IRR)
