F6

Question 1

three rules of time travel

Answer 1

1. convert to same point in time to be able to compare
2. to move cash flow forward in time you must compound it (interest on interest)
3. To move cash flow backwards in time you must discount it (divide by interest rate factor)

Question 2

valuing stream of cash flow

Answer 2

compute present value of cash flow

Question 3

perpetuities

Answer 3

stream of equal cash flow that occur at regular intervals and last forever

Question 4

annuity

Answer 4

stream of equal cash flow paid regularly but has an end

Question 5

growing perpetuity

Answer 5

stream of cash flow in regular intervals but grows constantly forever