COMM 121 Chapter Notes - Chapter 5: Annual Percentage Rate, Memory Stick, Effective Interest Rate
3 Sep 2016
School
Department
Course
Professor
Document Summary
Time value of money lump sum of cash flows. Pv and discounting; pv of all future cash flows (1+r)n. Fv = pv (1+r)n fv and compounding; fv of all cash flows received. We can earn simple interest c x r. Constant stream of cash flows without end. If cash flow is growing at g percent per year indefinitely. Pvt = c t+1 , r > g r g. Constant stream of payments for fixed number of periods. Pvt = c t+1 (1 r g ( 1+g )n) Same as annuity, but make payments at beginning of period. Discounted less (1 less period), so worth more. Stated tends to be under representative. **ear for continuous compounding ear = er 1. In canada, apr is stated with semi-annual compounding (m=2) and monthly payments (f=12) **where m is the number of compounding periods per year and f is the frequency of payments per year. **special case when m = f, epr = apr/m.
