BU111 Chapter 7: Time Value Explained
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BU111 Full Course Notes
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Series of equal payments over equal amounts of time. Annuity due: payment at the beginning of the period. Ordinary annuity: payment at the end of the period. Pmt = coupon rate x face value. Find present value of coupon payments and present value of face amount. Use pv of ordinary annuity and pv of single payment. If the compounding rate does not match payment periods. When interest is compounded and payments made same number of timer per year. N needs to represent total number of payments. R needs to be adjusted to compounding periods which is the same as number of payments per year. When interest compounding and payment periods do not match. M is the number of compounding periods per year. Effective rate for payment period = ( 1 + (r / m)) ^ (m/p) -1. When rate is stated as an annual percentage rate (apr) then the effective rate is.
