fiance ch2\ Flashcards
what is a annuity
its the payments you get from insurance
what is the present value formula
what will increase the future value of a annuity
- increasing payment amounts
- increasing the discount rate
- increasing the number of payments
what is the effective annual rate of 12% compounded quaterly
12.55%
You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $82,000 for the next 3 years. At a discount rate of 4 percent, what is this job worth to you today
227,557
What is the effective annual rate of 4% compounded quarterly
4.06
how to find the effective annual rate of a interest percentage compounded over a period of time
use the ear formula which has r as the intest percentage m is the time period and the formula is the following:
(1+r/m)^m -1
what would be the m number for compounding periods for a annual rate that happens quaterly
you would have it as 4 because they are asking for annual which is after the 4 quaters
how would you find todays value of something that has a discount rate
use the present value formula:
pv= p x 1-(1+r)^-n / r
what are the two different situations for future value and whats the difference
the first is finding the future value of a lump sum payment
pv x (1+r)^n
the second is the future value of reoccuring payments + interest
same as above just change pv to pyament amounts and put that as the numerator and minus 1 and divide by interest percentage
If the current market rate of interest is 8%, then the present value of $1,000 two years from now is
use the following formula:
pv= fv/(1+r)^n
The value computed using the factor 1/(1 + r)t is called the:
present value
Which one of the following will increase the present value of an annuity
lowering the discount rate
