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Investing in Stocks Chapter Sixteen
Investing in Stocks Chapter Sixteen

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Sample of HSFOL Problems – Year 10

... as  a  decimal  to  three  paces,  that  you  will  pick  a  black   jack  and  that  the  product  of  the  two  dice  results  is   greater  than  20?   ...
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... There is a good reason for holding some cash. Everyone should have an emergency fund. Ideally, one should have at least 6 months worth of expenses saved in order to deal with any unforeseen event(s). Outside of the emergency fund, however, better opportunities exist for cash. In this low interest ra ...
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... expected to increase in value 5 percent each year, (a) what is the appropriate value seven years from now? (b) If his income is $30,000 per year for a family of three, and prices increase by four percent a year for the next three years, what amount will the family need for living expenses? ...
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... • Assumption: All cash–flows occur within one year • Approximation: The compound–interest accumulation function is approximated by simple–interest accumulation function Remark: Since the simple interest rate that solves the equation of value depends on the reference time, the reference time is alway ...
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Present value

In economics, present value, also known as present discounted value, is the value of an expected income stream determined as of the date of valuation. The present value is always less than or equal to the future value because money has interest-earning potential, a characteristic referred to as the time value of money, except during times of negative interest rates, when the present value will be greater than the future value. Time value can be described with the simplified phrase, “A dollar today is worth more than a dollar tomorrow”. Here, 'worth more' means that its value is greater. A dollar today is worth more than a dollar tomorrow because the dollar can be invested and earn a day's worth of interest, making the total accumulate to a value more than a dollar by tomorrow. Interest can be compared to rent. Just as rent is paid to a landlord by a tenant, without the ownership of the asset being transferred, interest is paid to a lender by a borrower who gains access to the money for a time before paying it back. By letting the borrower have access to the money, the lender has sacrificed the exchange value of this money, and is compensated for it in the form of interest. The initial amount of the borrowed funds (the present value) is less than the total amount of money paid to the lender.Present value calculations, and similarly future value calculations, are used to value loans, mortgages, annuities, sinking funds, perpetuities, bonds, and more. These calculations are used to make comparisons between cash flows that don’t occur at simultaneous times. The idea is much like algebra, where variable units must be consistent in order to compare or carry out addition and subtraction; time dates must be consistent in order to make comparisons between values or carry out simple calculations. When deciding between projects in which to invest, the choice can be made by comparing respective present values of such projects by means of discounting the expected income streams at the corresponding project interest rate, or rate of return. The project with the highest present value, i.e. that is most valuable today, should be chosen.
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