finance lec 1 - annuity Flashcards
what is annuity
specialised stream of cashflow where same amount paid back at same frequency for a future period of time
in an annuity when must hte 1st paymnt e
a year from now
what do you need to remeber when cal the annuity formula
rate and the time period (t,%)
if you get an annuity that oays 1 year from now you dont need to
discount it
if you get an annuity that pays 2 years from now we need to
discount it by 1 year
if we get an annuity 3 years from no we need to disocunt it by
2 YEARS
If question dont say anything about annuity being paid more than a year ahead what do you do
assume it pays a year ahrad
if an annuity gives me a 1st patment 4 years from now what time alue flow am I gettinig and so what do i do
valu 3 years from now
discount i tback 3 years
the longer you wait for a cashflow
the lower the value today
they might say you get a loan that is paid in equal installmnts after 1 period of a loan what do they mean
its an annuity
give me an example of an annuity
bank loan
what is an amortised loan
for every payment you mkae - each covers interest charge + remianing baalnce
in terms of ammortised loan i take out 1k at an interest rate of 10% at the end of the year i owe 1100 split up this cost
1000 = principal loan
100 = interest
what must the size o fthe payment be in the ammortised loan
bigger than 100 (i.e cover interest) and will cover reduce loan balane
if you borrow 1k from bank for 4 years , IR = 10%
What is annal payment
pv = cf x af
1000 = cf (4t,10%)
1000 = cf * 3.1699
1000/3.1699 = cf
1000 today = 4 * 315.47