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Annuities

Annuity: Series of equal cash flows occurring at evenly spaced interval

Ordinary Annuity: Cash flow at end-of-time period

Annuity Due: Cash flow at beginning-of-time period

 

PV of Annuity Due = PV of Ordinary Annuity * (1 + r)


Perpetuities: annuities with an infinite life PVperpetuity = PMT / discount rate

 

Q: What is the worth of perpetuity paying $100 annually at an interest rate of 10%?

Answer:
PVPerpetuity = A/r
= $100/0.1
= $1,000

 

 





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