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Finance Homework Lessons
Future Value Formula
Future Value - the future value is the value of an asset at a specific time in the future. In other words, how much will my investment be worth at a specific time in the future.
In this example, we work through how to calculate the future value formula.
FV= The future value.
PV= The present value.
R= interest rate
N= number of periods.
Example future value problem. What is the future value of $1000 compounded annually at an interest rate of 8% for six years?
FV=1,000 * (1+.08)^6
Future Value Problem Solved In Excel
Present Value Formula In Excel - Calculator - Mathematically
Present value definition: the present value is simply the value of a cash flow or a lump sum payout expected in the future, in today’s dollars. Understanding the concept of Present Value helps finance students solidify their understanding of the basic concept in finance, which is a dollar today is worth more than a dollar tomorrow.
In the example to the right, the question reads: what is the present value of $5000 expected in two years at a discount rate of 6%?
Present Value and Future Value Template
Present value and future value template - Being able to quickly and accurately solve the present value in a future value is a critical skill needed for finance students to accurately solve finance homework problem. However, most students lack the necessary skills in Excel to be able to perform this task. Because of this, I have provided a step-by-step video to help students walk through setting up a template for solving the present value and future value finance homework problems.
For the future value homework problem: The question reads – how much will you $5000 invested today at a rate of 6% be worth in five years?
For the present value homework problem: the question reads – You will receive $5000 in five years. What is the present value if the discount rate is 6%?
Expected Rate of Return Formula
Expected rate of return - the expected rate of return is the return an investor expects To receive at a specific point in time in the future.
For this example, our stock has three possible return values based on how the economy performs in the future. If the economy does well, our investment will return 15%, if the economy grow slow, we expect a 6% return on our investment, and if the economy is in a decline, we expect a -20% return on the investment.
Further, the probability of the economy do an excellent is 30%, there is a 50% chance that the economy will grow slow, and only a 20% chance that the the economy will be in a decline. Based on this information, what is the expected rate of return? The video to the right walks through the various steps to solve this expected rate of return. On a final note, understanding the expected rate of return will help finance students solve WACC and capital budgeting problems.
Holding Period Return Formula
Holding Period Return - The holding period return is the return, expressed as an interest rate, of an investment over a specified period of time. Another way to look at the holding period return is: what was the return on my investments in the amount of time that I held the investment.
Understanding the holding period return formula will allow finance students to quickly ascertain the return on a stock or bond given the purchase price of the stock, any dividends paid, and the sales price.
HPR = (Sales Price + Dividends Paid – Purchase price)/ Purchase Price
For this problem, we are solving:
What is the holding period return if a stock sale price was $55, the stock paid a dividend of three dollars and the purchase price was $40?
Current and Expected Dividend Yield Problems and Formulas
Dividend Yield - The dividend yield is simply the dividend payment(s) conveyed as a percentage of the current stock price. Another way to look at the dividend yield is how much have I received in dividends as compared to the current price of a stock. This information is important to investors because an investor can understand the percentage they are receiving in return on an annual basis as compared to the current price of a stock.
For this problem, we are calculating both the current dividend yield and the expected dividend yield of a stock.
The question reads:
Janet purchased a stock last year for $70. Today, she can sell the stock for $76.50. In addition, the stock paid out a dividend two weeks ago of $.50. The expected growth rate of the dividend for the company is 3%.
What is the current dividend yield?
What is the expected dividend yield?
Other Helpful Finance Homework Problems Solved
Calculate the Beta of a Portfolio
Bond Valuation Finance Problem
Effects of Leverage on a Business
Profit and Loss Calculations
Calculating WACC Using a Formula
Preparing a Cash Budget
Constant Growth Formula
Break-even Point Formula
Purchasing and Selling a Business
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