B14 Annuity Due - Present Value Flashcards
1
Q
what is annuity due intuitively?
A
annuity with payments at the beginning of each time interval
2
Q
what is the difference b/w annuity due and annuity immediate?
A
annuity immediate is at the end of the period. Annuity due is at the beginning of the period.
3
Q
what does 1*ä angle n represent intuitively?
A
the value of n payments of 1 at the time of the first payment
4
Q
whats the formula for ä angle n i? in other words, what is the formula for the present value of a n annuity-due (ä angle n i) w/ n payments of 1, discounted using an effective periodic interest rate of i?
A
(1 - v^n)/d
v is the discount factor
d is the effective rate of discount
5
Q
what interest rate should you use for ä angle n?
A
should be interpreted as the effective rate of discount per payment period
