finance lec 1 - annuity

Question 1

what is annuity

Answer 1

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

Question 2

in an annuity when must hte 1st paymnt e

Answer 2

a year from now

Question 3

what do you need to remeber when cal the annuity formula

Answer 3

rate and the time period (t,%)

Question 4

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

Answer 4

discount it

Question 5

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

Answer 5

discount it by 1 year

Question 6

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

Answer 6

2 YEARS

Question 7

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

Answer 7

assume it pays a year ahrad

Question 8

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

Answer 8

valu 3 years from now

discount i tback 3 years

Question 9

the longer you wait for a cashflow

Answer 9

the lower the value today

Question 10

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

Answer 10

its an annuity

Question 10

give me an example of an annuity

Answer 10

bank loan

Question 11

what is an amortised loan

Answer 11

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

Question 12

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

Answer 12

1000 = principal loan

100 = interest

Question 13

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

Answer 13

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

Question 14

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

What is annal payment

Answer 14

pv = cf x af

1000 = cf (4t,10%)

1000 = cf * 3.1699

1000/3.1699 = cf

1000 today = 4 * 315.47

Question 15

beginning of y2 =

Answer 15

end of y1

Question 16

this is the tricky bit w ammortised loan

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

Answer 16

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

Question 17

annuity

Answer 17

standard recieve 1st payment a year from now - pv

Question 18

annuity due

Answer 18

first pyment is made immediatley

Question 19

deferred annuity

Answer 19

1st payment starts later than a year from now

Question 20

1 year defeered annuity

Answer 20

1st payment starts a year from now

Question 21

2 year deferred anuity

Answer 21

1st payment 3 years from now