Lecture 2 - Math Tools for Finance

Question 1

Future Value/Present Value

Answer 1

FV- The total amount due at the end of the investment period
PV- The value right now of a future cash flow

Question 2

Perpetuity/Annuity

Answer 2

Perpetuity - A constant stream of cash flows (lasts forever)
Annuity - Constant cash flows for a certain amount of years

Question 3

Ordinary Annuity/Annuity Due

Answer 3

OA - the first payment occurs one period away
AD - the first payment occurs at the beginning of the period

Question 4

EAR

Answer 4

Stands for Effective Annual Rate
gives you the actual annual interest rate that would give you the same end of investment wealth.