Time Value of Money (TVM)

• Explanation of TVM concepts
• Differences between compounding and discounting
• Importance of practicing TVM calculations

Interest Rates and Their Components

• Breakdown of interest rate components:
  • Risk-free rate
  • Inflation risk premium
  • Default risk premium
  • Liquidity risk premium
  • Maturity risk premium

Comparing Interest Rates

• Differences between stated annual interest rate and effective annual rate (EAR)
• Calculation of EAR with examples of different compounding frequencies

Present and Future Value Calculations

• Present value (PV) and future value (FV) of single sums and cash flows
• Importance of understanding annuities and perpetuities

Investment Decision Criteria

• Key Concepts:
  • Net Present Value (NPV)
  • Internal Rate of Return (IRR)
  • Payback period
  • Discounted payback period
  • Profitability Index (PI)
• Use of NPV and IRR for project evaluation

Bond Pricing and Time Value of Money

• Application of discounted cash flow analysis to bond pricing
• Calculation of bond prices given the market discount rate

Multiple IRR Problem

• Explanation of the multiple IRR problem and how to address it
• Example of fluctuating capital projects with non-conventional cash flows

Summary of Key Concepts