CHAPTER 4 Applied Finance and Economics
This chapter is laid out in two sections: applied finance (the time value of money) and economics. The readings that follow offer a thorough review of time value of money (TVM) concepts and an overview of macroeconomic principles and analysis.
Section I: Time Value of Money
Investment advisors and consultants must understand the mathematics behind the concepts in the area of time value of money. They should be able to perform calculations by hand or with the help of a spreadsheet, computer program, or on their financial calculator. Simply understanding the intuition is not enough…the ability to calculate and apply are essential. The readings in this chapter explain each concept and provide numerous mathematical examples. Exercises and questions will help readers apply these formulae to solve practical problems in finance.
Part I Foundations and Applications of the Time Value of Money: The Basics of the Time Value of Money
Learning Objectives
- Explain the concept of the time value of money; and describe compounding, discounting, present value, and future value.
- Express present value and future value in an equation, and calculate each when given a fact pattern or problem to solve.
- Discuss frequency of compounding and explain the annual percentage rate (APR).
- Solve problems converting and comparing interest rates based on monthly, quarterly, semiannual, and annual interest payments.
Part II Foundations and Applications of the Time ...
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