Comprehensive coverage of the time value of money In this book, authors Pamela Peterson Drake and Frank Fabozzi fully expand upon the type of time value of money (TVM) concepts usually presented as part of overviews given in other general finance books. Various TVM concepts and theories are discussed, with the authors offering many examples throughout each chapter that serve to reinforce the tools and techniques covered. Problems and detailed solutions-demonstrated using two different financial calculators, as well as Excel-are also provided at the end of each chapter, while glossary terms are provided in an appendix to familiarize you with basic terms. Provides the basic foundations of the time value of money Covers issues ranging from an introduction of financial mathematics to calculating present/future values and understanding loan amortization Contains problem/solution sets throughout, so you can test your knowledge of the topics discussed Understanding the time value of money is essential, and this reliable resource will help you gain a firm grasp of its many aspects and its real-world applications.

Table of Contents:
Preface ix About the Authors xi Introduction xiii Part One The Basics of the Time Value of Money 1 Chapter 1 The Value of Compounding 3 Compounding 7 Calculator and Spreadsheet Solutions 11 Frequency of Compounding 14 Summary 20 “Try It” Solutions 21 Problems 22 Chapter 2 Don’t Discount Discounting 23 Discounting 23 Discounting More Than One Future Value 31 Determining the Number of Compounding Periods 35 Summary 38 “Try It” Solutions 38 Problems 39 Chapter 3 Cash Happens 41 Valuing a Stream of Future Cash Flows 42 Valuing a Perpetuity 51 Annuities 54 Summary 61 “Try It” Solutions 62 Problems 62 Chapter 4 Yielding for Yields 65 Annualized Rates of Interest 65 Determining the Unknown Interest Rate 77 Rules 88 Summary 89 “Try It” Solutions 90 Problems 90 Part Two A Few Applications 93 Chapter 5 Loans 95 Loan Amortization 95 Interest Rates on Loans 104 Determining the Number of Periods 108 Variations on the Theme 109 Summary 114 “Try It” Solutions 114 Problems 115 Chapter 6 Saving to Spend 119 Valuing a Deferred Annuity 119 Annuities with Annuities 126 A Bit of Realism 135 Summary 138 “Try It” Solutions 139 Problems 139 Chapter 7 Values Tied to Bonds 141 Bond Basics 142 Calculating the Yield to Maturity 154 Issues 157 Interest Rates 163 Yield Curves 164 Summary 169 “Try It” Solutions 170 Problems 171 Chapter 8 Taking Stock 173 What’s in a Value? The Basics of Stock Valuation 174 Return on Stocks 187 Summary 192 “Try It” Solutions 193 Problems 195 Chapter 9 A Capital Idea 197 The Net Present Value 198 The Profitability Index 201 The Internal Rate of Return 204 Summary 214 “Try It” Solutions 215 Problems 216 Chapter 10 Finance Fact or Fiction? 219 Fact or Fiction: It Pays to Get an MBA 219 Fact or Fiction: Leasing a Car Costs Less than Buying a Car 222 Fact or Fiction: Gold Has Always Been a Good Investment 225 Summary 230 Appendix A Using Financial Calculators 231 Preparing the Calculator 232 The Basics 235 Financial Functions 237 Tips 242 Troubleshooting Problems 243 Appendix B Using Spreadsheets in Financial Calculations 247 The Basics 247 Time Value of Money Functions 248 Cash Flow Functions 252 Other Useful Functions for Financial Mathematics 253 Appendix C Formulas 255 Appendix D Glossary 261 Appendix E Solutions to End-of-Chapter Problems 265 Index 281