1. ECO218: PRINCIPLES OF FINANCE
Course Introduction

2. ECO218: PRINCIPLES OF FINANCE Course Introduction
Firms are required to keep detailed financial records so that organized reports can be distributed to managers, shareholders, and government regulators.
Principles of Finance focus on what these managers, investors, and government agencies do with this information. It ca also be label as "corporate finance" or "financial management".

3. ECO218: PRINCIPLES OF FINANCE Course Introduction
Finance is a broad term; you will find that both managers that compile the financial reports and stockbrokers working on the Stock Exchange Markets will claim that they work in finance.

4. ECO218: PRINCIPLES OF FINANCE Course Introduction
So what exactly is finance?

5. ECO218: PRINCIPLES OF FINANCE Course Introduction
Finance is the science of fund management.
It is distinct from accounting in that, whereas accounting aims at organizing and compiling past information, finance is geared towards deciding what to do with that information.

6. ECO218: PRINCIPLES OF FINANCE Course Introduction
In Finance we learn how to determine which projects have the best potential payoff.
How to manage investments.
How to value stocks.

7. ECO218: PRINCIPLES OF FINANCE Course Introduction
In the end, you will discover that all finance boils down to one concept: return.
In essence, finance asks: "If I give you money today, how much money will I get back in the future?“

8. ECO218: PRINCIPLES OF FINANCE Course Introduction
Financial concepts:-
Time value of money
Management financial statements
Ratio analysis
Capital budgeting

9. ECO218: PRINCIPLES OF FINANCE Course Introduction
Financial concepts:-
Capital structure
cost of capital
Bonds 
Stocks

10. ECO218: PRINCIPLES OF FINANCE Course Introduction
In summary
Principles of Finance will show us how to use financial concepts such as the time value of money, financial statements, financial ratio analysis, capital budgeting analysis, capital structure, the cost of capital, bonds and stocks.
It will also provide an understanding of cash flow and long term financing, and how to apply these concepts and skills in business decisions.

11. ECO218: PRINCIPLES OF FINANCE
Time value of money;-
 Introduction to Interest

12. ECO218: PRINCIPLES OF FINANCE Time value of money
Suppose you have the option of receiving 100,000naira today vs. 200,000naira in five years. Which option would you choose?
How would you determine which is the better deal?
Some of us would rather have less money today vs. wait for more money tomorrow.

13. ECO218: PRINCIPLES OF FINANCE Time value of money
However, sometimes it pays to wait.
Time value of money explains how to determine the value of money today vs. tomorrow by using finance tools to determine present and future values.
Also, Time value of money exposes the concept of interest rates and how to apply them when multiple periods are considered.

14. ECO218: PRINCIPLES OF FINANCE Time value of money
Let take a look at the difference between present value and future value. 
The concept called the "time value of money" assumes that individuals face either an increase in prices in the economy as time passes in the form of an inflation rate, such as a 4% annual inflation rate, or
an opportunity to put their savings in an investment account offering an interest rate, such as 5% per year.  

15. ECO218: PRINCIPLES OF FINANCE Time value of money
Therefore, under the "time value of money" concept, you can see that 1,000naira that you can receive in two years from today does not have the same value as 1,000naira today.  
In fact, it will have a lesser value today.  

16. ECO218: PRINCIPLES OF FINANCE Time value of money
Likewise, if you receive 1,000naira today and have the opportunity to put this money in an investment account earning 5% per year, in two years you will have more than 1,000naira.

17. ECO218: PRINCIPLES OF FINANCE Time value of money
Assume: 10% risk free interest
Now 1 year 2year
100, , ,000
100, ,000 = 110, ,000 = 121,000

18. ECO218: PRINCIPLES OF FINANCE Time value of money Future(FV) vs Present(PV) Value
Assume: 10% risk free interest
FV 1 year 2year
100, , ,000

19. ECO218: PRINCIPLES OF FINANCE Time value of money Future(FV) vs Present(PV) Value
Assume: 10% risk free interest
What is the PV of 65,000 in one year
let x be the PV
this mean that
1x + 10%x = 65,000
1x x = 65,000
1.10x = 65,000
x = 65,000 / 1.10
x = 59,

20. ECO218: PRINCIPLES OF FINANCE Time value of money Future(FV) vs Present(PV) Value
Assume: 10% risk free interest
The PV of 65,000 in one year
will be 59,
It then mean that
The FV of 59, in one year
will be 65,000

21. ECO218: PRINCIPLES OF FINANCE
 Introduction to Interest

22. ECO218: PRINCIPLES OF FINANCE Introduction to Interest
What is Interest?

23. ECO218: PRINCIPLES OF FINANCE Introduction to Interest
Interest is what you Paid for keeping an Amount of Money over a Period of Time.
It could also be regarded as Rent Paid for the Usage of Money over a specific Time Period.

24. ECO218: PRINCIPLES OF FINANCE Introduction to Interest
Interest can either be a Simple or Compound Interest.
In Reality Only Compound Interest are used in modern Economics
But we shall start our discussion with a Simple Interest.

25. ECO218: PRINCIPLES OF FINANCE Introduction to Interest Simple Interest

26. ECO218: PRINCIPLES OF FINANCE Introduction to Interest Simple Interest
Assume: 10% per Year risk free Simple interest
Principal is 100,000naira
How much do I Own at the end of Ten years from Today

27. ECO218: PRINCIPLES OF FINANCE Introduction to Interest Simple Interest
Assume: 10% per Year risk free Simple interest
Principal is 100,000naira
Maturity Date is 10years
let x be the Value I Own at the end of each Year Ti.
this mean that at end of each Year:-
T0: x = 100,000naira
T1: x = 100,000 + (100,000)(0.10) = 100, ,000
= 110,000

28. ECO218: PRINCIPLES OF FINANCE Introduction to Interest Simple Interest
Assume: 10% per Year risk free Simple interest
Principal is 100,000naira
Maturity Date is 10years
T2: x = 100,000 + (100,000)(0.10)(2)
= 100, ,000
= 120,000

29. ECO218: PRINCIPLES OF FINANCE Introduction to Interest Simple Interest
Assume: 10% per Year risk free Simple interest
Principal is 100,000naira
Maturity Date is 10years
T3: x = 100,000 + (100,000)(0.10)(3)
= 100, ,000
= 130,000

30. ECO218: PRINCIPLES OF FINANCE Introduction to Interest Simple Interest
Assume: 10% per Year risk free Simple interest
Principal is 100,000naira
Maturity Date is 10years
T10: x = 100,000 + (100,000)(0.10)(10)
= 100, ,000
= 200,000

31. ECO218: PRINCIPLES OF FINANCE Introduction to Interest Simple Interest
In summary
Assume: r% per Year risk free Simple interest
P is the initial Principal Amount
let x be the Value Owned at the end of each Year Ti.
this mean that at end of each:-
Ti: x = P + (P)(r)(i)

32. ECO218: PRINCIPLES OF FINANCE Introduction to Interest Simple Interest
So if;
r = 10% (Simple Interest rate)
P = 100,000 (Initial Principal Amount)
I = 10 (Years of Maturity)
let x be the Value Owned at the end of Ti Years.
this mean that at end of i years:-
T10: x = 100,000 + (100,000)(0.10)(10)
= 100, ,000
= 200,000