Eco 202 ch 27 basic tools of finance
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Transcript of Eco 202 ch 27 basic tools of finance
![Page 1: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/1.jpg)
Chapter 27
Basic Toolsof
Finance
![Page 2: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/2.jpg)
SurveyQuestion 1
What would you prefer?
A. Win 1,000 riyals
B. Flip a coin: 50 percent chance you win 2,000 riyals50 percent chance you win nothing.
![Page 3: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/3.jpg)
SurveyQuestion 2
What would you prefer?
A. Lose 1,000 riyals
B. Flip a coin: 50 percent chance you lose 2,000 riyals50 percent chance you lose nothing.
![Page 4: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/4.jpg)
Payback?
One year?
Five years?
Ten years?
![Page 5: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/5.jpg)
Promissory Note
Trading paper for paper
I.O. U.
10 SARDr. Gale
![Page 6: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/6.jpg)
Finance
Time and Risk
![Page 7: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/7.jpg)
Key Formula 1
(1+r)N
r = rate N = number of periods
Future Value or FV
![Page 8: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/8.jpg)
(1+r)N
r = 7% N = 3FV =?
1 1.0702 1.1453 1.225
N FV
![Page 9: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/9.jpg)
(1+r)N
r = 10% N = 5FV =?
1 1.1002 1.2103 1.3314 1.4645 1.611
N FV
![Page 10: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/10.jpg)
(1+r)N
r = 15% N = 3FV =?
1 1.1502 1.3233 1.521
N FV
![Page 11: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/11.jpg)
(1+r)N
r = 15% N = 3FV =?
1 1.1502 1.3233 1.521
N FV
![Page 12: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/12.jpg)
Key Formula 2
(1+r)N
r = rate N = number of periods
Present Value or PV1 Reciprocal
of the FV formula
![Page 13: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/13.jpg)
(1+r)N
r = 7% N = 3PV =?
1 .9352 .8733 .816
N PV
1
![Page 14: Eco 202 ch 27 basic tools of finance](https://reader033.fdocuments.in/reader033/viewer/2022052619/5566225cd8b42a61238b4c3e/html5/thumbnails/14.jpg)
(1+r)N
r = 10% N = 5PV =?
1 .9092 .8263 .7514 .6835 .621
N PV
1