HTA 602 Lecture 6: Chapter 6

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6. 1 future and present values of multiple cash flows. Future values with multiple cash flows: fv= c * (1+r) ^t. Present values with multiple cash flows: pv = c/ (1+r) ^t the basic present value equation giving the relationship between present and future value. A note on cash flow timing: cash flows occur at the end of each period. 6. 2 valuing level cash flows: annuities & perpetuities: annuity: series of constant/ level cash flows that occur at the each of each period for some fixed no of periods. 1st payment occurs at the end of period = ordinary annuity. If 1st payment occurs at beginning of period = annuity due. Present value for annuity cash flows: annuity present value = c * ((1- present value factor)/ r) R= discount value, t= no of payment/ life of annuity. = c * ((1- 1/ (1+r) ^t) / r: pva (due)= (1+r) * pv ordinary a.

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