ACST101 Lecture Notes - Lecture 3: Cash Flow, Interest
ACST101 LECTURE – 15/3/18
WK3; TIME VALUE OF MONEY – PART 2 MULTIPLE AMOUNTS (CASH FLOWS)
MULTIPLE CASH FLOWS
MCF’s: Multiple Cash Flows – a group of single cash flows.
Formula;
EFFECTIVE ANNUAL INTEREST RATE (EAR)
Nominal Interest Rate: the simple interest rate charged per period multiplied by the
number of period per year.
EAR: the annual interest rate that reflects compounding in a year.
ANNUITIES AND PERPETUITY
Perpetuity: a series of equally spaced and level cash flows that continue forever.
Annuity: a series of equally spaced and level cash flows extending over a finite number of
periods.
o Ordinary Annuity: an annuity in which payments are made at the end of each
period.
o Annuity Due: an annuity in which payments are made at the beginning of each
period.
Present Value of Annuity (PVA): the PV of the cash flows from an annuity, discounted at the
appropriated discount rate.
Future Value of Annuity (FVA): the value of an annuity at some point in time.
FV of an Ordinary Annuity:
PV of an Ordinary Annuity:
normal equation
re-arranged, calculating loan repayment
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