LO 0-7 Present Value of an Ordinary Annuity and Perpetuity Flashcards
1
Q
Annuity
A
when there is equal timing and amount
ex: same payment every 6months
2
Q
Fixed income security =
A
annuity
3
Q
PVA
A
P*(r-r^n+1/1-r)
4
Q
interest
A
interest rate percentage
5
Q
n
A
number of payments
6
Q
r
A
r = 1/1+i
7
Q
as payments go out way into the future the ______ they are worth today
A
LESS, the value approaches 0 because of r^n+1 gets smaller as payments increase
8
Q
perpetuity
A
continuous steam of payments and its never going to end
9
Q
PVP
A
PVP= P9r/1-r) = P/i
10
Q
how will lowering the discount rates affect the PVP?
- decrease the present value
- increase the present value
- no effect
A
-increase the present value
11
Q
annuities are
A
fixed income securities
12
Q
how will lowering the discount rates affect the PVA?
- decrease the present value
- increase the present value
- no effect
A
-increase the present value
