🙋 Student Q&A (Lecture 7)

Click here to learn about timestamps and my process for answering questions. Section agendas can be found here. Email office hour questions to rob.mgmte2000@gmail.com . PS1Q2=“Question 2 of Problem Set 1”

📅 Questions covered Tuesday, Apr 1

Clarification: PV vs FV

🕣 8:01pm
❔ What words differentiate Present Value question or Future Value question? i.e. how do you figure out which formula to apply.

✔ If the question tells you amounts of cash you will pay or receive in the future and you want to know how much money that is equivalent to today, then it is a Present Value question. This is because you are trying to find the “present value” of the future payments or receipts.

If the question tells you the amount of cash you will pay or receive today* and you want to know how much money that is equivalent to in the future, then that is a Future Value question. This is because you want to know the future value of these present payments or receipts.

Unfortunately, there’s no shortcut other than answering this question. These tools are powerful enough that they can be applied in a huge variety of settings using different language. However, if you apply these principals, you can always find the answer.

Lotter IRR example

🕣 8:05pm
❔ I just had a quick question about IRR. I was looking back at Lecture 6, where Bruce was discussing the Mass Lottery and comparing the lump sum to the annual payments. I am having trouble figuring out how he put this into one of the financial calculators to determine what discount value would make the lump sum equal the annual payments. Would you be able to help me understand this?

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