BU283 Lecture Notes - Lecture 3: Cash Flow
Document Summary
Definition: a stream of equal cash flows that are paid out (or received) at equal intervals. Ordinary annuity: an annuity for which the payments occur at the end of each period. Annuity due: an annuity for which the payments occur at the beginning of each period. For a five-payment, yearly annuity, given the end-of-period timing assumption, the first payment occurs at year 1 and the future value is calculated on the date of the last payment (year. 5), so only 4 years between the first and last payment. Fees and fv: most individuals save for retirement through mutual funds, funds charge fees. To pay portfolio managers and sales people. Averages 2. 5% for actively managed funds: fees drive a wedge between fund"s return and investor"s return, fee assessed on end of year value. Pvai/m=c(pvifai/m, nm) (present value interest factor of annuity) Solution: equation of value: eov: savings= withdrawls.
