ECON371 Lecture Notes - Lecture 3: Cash Flow, Interest Rate, Real Interest Rate

• School: University of Waterloo
• Department: Economics
• Course: ECON371
• Professor: pirapa

Document Summary

I/y interest rate per period: n number of periods, pv present value. Fv future value: pmt annuity or constant periodic cash flow, cpt - compute key. Annuities: cash flows of equal amount every period for a limited number of periods. Example: loan payments for automobile, periodic earnings from lottery wins, etc. Perpetuities: cash flows of equal amount every period for an unlimited number of periods. Pv of a perpetuity = c / r. Note: this formula gives you the present value of a perpetuity starting one period from now. (if starting from today, just add the value of today to the perpetuity) Note: this formula gives you the present value of an annuity starting one period from now. The term in the parentheses is called the present value interest factor of an annuity (pvifa). Note: this formula gives you the future value of an annuity starting one period from now.