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Contents v

Appendix B: Sample Advertisements   297

Appendix C: Sample List of Composite Descriptions   300
Practice Problems   304
Solutions   306

Quantitative Methods

Study Session 2 Quantitative Methods (1)   311

Reading 6 The Time Value of Money   313

Introduction   313
Interest Rates: Interpretation   314
The Future Value of a Single Cash Flow   316
The Frequency of Compounding   321
Continuous Compounding   323
Stated and Effective Rates   324
The Future Value of a Series of Cash Flows   325
Equal Cash Flows—Ordinary Annuity   325
Unequal Cash Flows   327
The Present Value of a Single Cash Flow   327
Finding the Present Value of a Single Cash Flow   327
The Frequency of Compounding   330
The Present Value of a Series of Cash Flows   331
The Present Value of a Series of Equal Cash Flows   331
The Present Value of an Infinite Series of Equal Cash Flows—
Perpetuity   336
Present Values Indexed at Times Other than t = 0   337
The Present Value of a Series of Unequal Cash Flows   339
Solving for Rates, Number of Periods, or Size of Annuity Payments   339
Solving for Interest Rates and Growth Rates   340
Solving for the Number of Periods   342
Solving for the Size of Annuity Payments   343
Review of Present and Future Value Equivalence   347
The Cash Flow Additivity Principle   349
Summary   350
Practice Problems   351
Solutions   356

Reading 7 Statistical Concepts and Market Returns   369

Introduction   370
Some Fundamental Concepts   370
The Nature of Statistics   371
Populations and Samples   371
Measurement Scales   372
Summarizing Data Using Frequency Distributions   373
The Graphic Presentation of Data   381
The Histogram   382
The Frequency Polygon and the Cumulative Frequency Distribution   383

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