MAF101 Lecture 3: Finance Notes - Week 3
15 Aug 2018
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Document Summary
Ordinary annuity: cash flows received/paid at the end of each period, such as. Annuity due: cash flows received/paid at the beginning of each period, such as. Amortization refers to paying off debt with a fixed repayment schedule in regular instalments over a period of time (annuity for when pv, r and n are given) Sinking fund involves establishing a fund/reserve with a fixed payment schedule in regular instalments over a period of time (annuity for when fv, r and n are given) Michael agrees to repay the money with 12 monthly instalments. To evaluate, we need to work out pv of this stream and compare it with initial lending, ,000. r = 0. 036 / 12 = 0. 003 (per month), n = 12 (months) Conclusion: jack should accept the deal as pv of michael"s repayment stream is more than principal loaned. Deferred annuity 6 payments, starting from year 7.
