Exam (elaborations)
REE5305 FSU - Liang - Unit 2 (1).
REE5305 FSU - Liang - Unit 2 (1).
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REE5305 FSU - Liang - Unit 2TVM - ANS-1. Dollar today worth more than dollar tomorrow.
- Compounding: deposit, and find FV
- Discounting: borrow from FV and exchange for PV
Valuing 1 Cash Flow: - ANS-1. Only values at the same point in time can be compared or
combined.
2. To calculate a cash flow's future value, we must compound it
3. Calculate PV of future cash flow, must discount.
Types of Streams of Cash Flows: - ANS-1. Perpetuity: constant stream of cash flows that last
forever.
2. Growing Perpetuity: stream of cash flows that grows at a constant rate forever.
3. Annuity: a stream of constant cash flows that lasts for a fixed # of periods.
4. Bond (fixed Rate): a stream of constant cash flows that lasts for a fixed # of periods and plus
a terminal cash flow
5. Nonconstant Cash Flows: a stream of nonconstant cash flows that lasts for a fixed # of
periods, and plus a terminal cash flow.
Perpetuity: - ANS-1. PV(C in perpetuity): C/r: c = cash flows, r = discount rate
Growing Perpetuity: - ANS-1. PV (Growing Perpetuity) = C/r-g
Annuity Cash Flows & PV: - ANS-1. PV = C/(1+r)+C/(1+r)^2, etc.
2. Excel: PV(rate,nper,pmt,fv)
PV Annuity: - ANS-1. Win $30mil lottery. 15mil today, 1mil per year for 30 years, r: .08.
2. PV(.08,29,1,000,000,0)=11.16Mil
3. Take 15mil today
PV Annuity 3: - ANS-1. PV of $500 yearly for 3 years, and 1000 at end of 4th year, r: .15.
2. PV(.15,3,-500)=1,141.61
3. PV of 1000: (.15,4,0,-1000)=571.75
4. PV: 1,141.61+571.75=1,713.3
PV Annuity 4: - ANS-1. Receive 0 for 10 years, then 300 for 10 + years, r: .15.
2. PV(.15,10,-300)=1,505.63
3. PV(.15,10,,1505.63)=372.17
Bond: - ANS-1. CPN's + terminal value (face value).
2. Excel: pv(rate,nper,cashflow, terminal cash flow)
, Bond 2: - ANS-1. PV of 500 for 4 years, and 1,000 at end of 4th year, r: .15:
2. PV(.15,4,500,-1000)=$1,999.24
Nonconstant CF's: - ANS-1. NPV(rate,Cash Flows)
Nonconstant CF's 2: - ANS-1. PV, following cash flows, r:.12; 40k now, 50k end of y1, 0 end of
y2, 60k end of y3, 70k end of y4.
2. NPV(.12,Cash Flows)=$171,835.94
Mortgage Loan Calculations: - ANS-1. Required annual mortgage constant for r:.10, 25n, annual
payments?
2. MC = Annual Debt Service (ADS) / Loan Amount; or MC = ADS/Value of Mortgage
3. PV assumption of 1, FV = 0 (pays it off), NPER: 25, Rate: 10%
4. PMT(.1,25,1,0)=.1102
5. MC=ADS/Loan Amount = .1102/1=11.02%
Amortizing Loan: - ANS-1. Calculating a loan payment
2. Calculating remaining balance on a loan.
Mortgage Loan Calculation: - ANS-1. Amortizing Loan payment: determine ADS required to fully
amortize 240k loan at r: .08625, monthly 25 years.
2. PMT(.08625/12,25*12,-240,000,0)= 1952.80 = monthly debt service (MDS)
Mortgage Loan Calculation 3: - ANS-1. Amortizing Loan payment: determine ADS required to
fully amortize 240k loan at r: .08625, monthly 25 years.
2. Determine balance on loan, after payment of 7 years.
3. PMT(.08625/12,7*12,1952.8,-240000)= $213,851.51
Mortgage Loan Calculation 4: - ANS-1. Amortizing loan interest payment and principal payment:
Determine interest payment and principal payment for first payment in 1 month of previous loan.
We know that monthly payment is $1,952.8 (MDS)
2. Must know Mortgage Balance (MB) to compute interest payment.
3. MB in M1 should be full loan amount of 240k.
4. MB*monthly interest rate: 240,000*.0719= $1,725.6
5. Principal payment = MDS - Monthly Interest = 1952.8 - 1725.6
Developing Statements of OP Cash Flow: - ANS-1. Statements reflect:
- Lease terms
- market supply and demand conditions affecting rents
- the tenant's credit risk
- opex divided between the property owners and tenants
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