finance lec 1 - annuity Flashcards

1
Q

what is annuity

A

specialised stream of cashflow where same amount paid back at same frequency for a future period of time

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2
Q

in an annuity when must hte 1st paymnt e

A

a year from now

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3
Q

what do you need to remeber when cal the annuity formula

A

rate and the time period (t,%)

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4
Q

if you get an annuity that oays 1 year from now you dont need to

A

discount it

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5
Q

if you get an annuity that pays 2 years from now we need to

A

discount it by 1 year

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6
Q

if we get an annuity 3 years from no we need to disocunt it by

A

2 YEARS

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7
Q

If question dont say anything about annuity being paid more than a year ahead what do you do

A

assume it pays a year ahrad

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8
Q

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

A

valu 3 years from now

discount i tback 3 years

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9
Q

the longer you wait for a cashflow

A

the lower the value today

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10
Q

they might say you get a loan that is paid in equal installmnts after 1 period of a loan what do they mean

A

its an annuity

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10
Q

give me an example of an annuity

A

bank loan

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11
Q

what is an amortised loan

A

for every payment you mkae - each covers interest charge + remianing baalnce

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12
Q

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

A

1000 = principal loan

100 = interest

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13
Q

what must the size o fthe payment be in the ammortised loan

A

bigger than 100 (i.e cover interest) and will cover reduce loan balane

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14
Q

if you borrow 1k from bank for 4 years , IR = 10%

What is annal payment

A

pv = cf x af

1000 = cf (4t,10%)

1000 = cf * 3.1699

1000/3.1699 = cf

1000 today = 4 * 315.47

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15
Q

beginning of y2 =

A

end of y1

16
Q

this is the tricky bit w ammortised loan

what does the payment of 315.47 do for our 1k 10% interest loan and explain

A

first 100 of 315.47 covers 100 interest the rest reduces the loan

784.53 - we accrue interest of 10% then the 315.47 covers 100 and then loan

keeps acrruing interest and we keep apying back till we done

17
Q

annuity

A

standard recieve 1st payment a year from now - pv

18
Q

annuity due

A

first pyment is made immediatley

19
Q

deferred annuity

A

1st payment starts later than a year from now

20
Q

1 year defeered annuity

A

1st payment starts a year from now

21
Q

2 year deferred anuity

A

1st payment 3 years from now