MAF101 Lecture Notes - Lecture 3: Cash Flow

• School: Deakin University
• Department: Business and Law
• Course: MAF101
• Professor: All

Document Summary

When the periodic cash flows are of the same amount the pattern is defined as annuity. 1)ordinary annuity: cash received/paid at the end of each period. 2)annuity due: cash received/paid at the beginning of each period. *the present value of an annuity due is equivalent to the present value of an ordinary annuity compounded one additional period. *the future value of an annuity due is equivalent to compounding by one additional period the future value of an ordinary annuity. What if the payment is more than once per year. *paying off a debt with a fixed repayment schedule in regular instalments over a period of time. Finding pmt of an annuity when pv , r and n are given. The ratio of interest depends on loan balance so through time interest decreases and loan balance decreases. *a target into the future. (an annuity due) Finding pmt when fv , r and n are given.