corporate finance ch 5

Suppose you paid off a $1200 loan by paying $400 in principal each year plus 10% annual interest over a 3-year period. What is the total payment (interest plus principal) in Year 3?

$440 [$400+(1200-800) x .10=440]

What is the present value of the following cash flow stream discounted at 6%? $100 in years 1 and 2 followed by $200 in years 3 and 4.

$509.68

What can be used to calculate the future value of multiple cash flows?

(1) compound the accumulated balance forward one year at a time (2) calculate the future value of each cash flow first and then add these up.

What are the ways to amortize a loan?

Have the borrower make a single, fixed payment every period.

In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the _________ of each period.

end

Amortization is the process of paying off loans by regularly reducing the _____.

principal