AMORTIZATION AND NPV (copy)

Amortized Loans

loan that is to be repaid in equal payments over a specified period of time

amortization schedule.

a table showing payments to be made, the due dates and the breakdown of each payment – the portion that goes to the principal and how much goes to the interest

bring down ending balance of last period

how to compute beginning amount amortization table?

beginning amount * interest rate

how to compute interest of amortization table?

Payment - interest

how to compute repayment of principal amortization table?

Beginning amount - repayment principal

how to compute ending balance amortization table?

Net Present Value Method

used to determine whether a project should be accepted or rejected by a company.

accept the project if the net present value is positive and reject if the net present value is negative.

what is the basic decision rule in NPV

Net Present Value

a capital budgeting technique applied by determining first all the relevant cash flows, positive and negative, of a project then calculating the present values of these cash flows using an appropriate discount rate

risk-return trade off

principle that potential return rises with an increase in risk.

True

(True or False) Low levels of uncertainty or risk are associated with low potential returns, whereas high levels of uncertainty or risk are associated with high potential returns.

False (invested money can render higher profits only if the investor is willing to accept the possibility of losses)

(True) invested money can’t render higher profits if the investor is willing to accept the possibility of losses

isk tolerance, years to retirement and the potential to replace lost funds.

appropriate risk-return trade off depends on a variety of factors including