BU111 Lecture 13: BU111 - Lecture 13 - Economic Factors (Continued)
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Bu111 - lecture 13 - economic factors (continued) How big must your savings account be today if you want to receive a payment of. Assume an interest/discount rate of 4% r = . 04. You borrowed ,000 to fund your education. How much would you pay for an investment that will give you ,000 after four years and a payment of each year as well. Add ordinary annuity ( payments) and present value annuity () = ,074. 34. Annuity that goes on forever, e. g. dividend on a preferred share. Payment and interest periods must be the same. N = years x p number of payments per year. Adjust compounding rate to match payment frequency (this is your new r ) Divide r by p number of payments per year. What is the present value of four years of payments received every six months and compounded semi-annually at 3%? r = . 03/2 = . 015.
