LE2 Flashcards
A series of uniform payments made at equal intervals of time.
Annuity
The payment is made at the end of each period starting from the first period.
Ordinary Annuity
The payment is made at the beginning of each period starting from the first period.
Annuity Due
The first payment is made several periods after beginning of annuity.
Deferred Annuity
It is annuity where payment periods extend forever or periodic payment continue indefinitely.
Perpetuity
The equal payment are made at the end of each compounding period starting from the first compounding period.
Ordinary Annuity
What is the formula to get the FUTURE WORTH of an Ordinary Annuity?
F = A [ ( 1 + i ) ^n – 1 / i ]
What is the formula to get the PRESENT WORTH of an Ordinary Annuity?
P = A [ ( 1 + i ) ^n – 1 / i ( 1 + i ) ^n ]
It is the formula for Geometric Progression
S = A ( 1 - r ^n ) / 1 - r
It is like a regular annuity, except the first payment is delayed by a certain number of compounding periods.
Deferred Annuity
What is the formula to get the PRESENT WORTH of a Deferred Annuity?
P = A [ ( 1 + i ) ^n – 1 / i ( 1 + i ) ^( n + k ) ]
What is the formula to get the FUTURE WORTH of a Deferred Annuity?
F = A [ ( 1 + i ) ^n / i ]
An application of perpetuity.
Capitalized Cost
The _________ of a project, structure, or machine is the sum of the First Cost (FC), and the present worth of all future payments and replacements which is assumed to continue for a long time or forever.
Capitalized Cost
What is the formula for Capitalized Cost?
C = FC + ( OM / i ) + ( RC – SV ) / ( 1 + i ) ^n – 1
where:
C = Capitalized Cost
FC = First Cost
OM = Annual Operation and Maintenance Cost
RC = Replacement Cost
SV = Salvage Value or Salvage Cost
