Present Values and Annuities Flashcards
What are two example of annuities?
Bond interest payments and lease rental payments
When are payments made in regards to ordinary annuity?
At the end of each period
When are payments made in regards to annuity due?
At the beginning of each period
How do you calculate present value of ordinary annuity?
The number of payments is equal to the number of interest periods
How do you calculate present value of annuity due?
The number of interest periods is one less than the number of payments
What is the significance of the present value of $1?
The amount that must be invested now at a specific interest rate
What is an example of present value of $1?
US Savings Bond
What is the significance of the future value of $1?
The amount that would accumulate at a future point in time if $1 were invested now
What is an example of future value of $1?
Bank savings account
What is the significance of a present value of an ordinary annuity?
The current worth of a series of identical periodic payments to be made in the future
What is an example of a present value of an ordinary annuity?
Winning the lottery
What is the significance of a future value of an ordinary annuity?
The sum, to be received at some point in the future, of identical periodic investments made from the present until that future point.
What is an example of a future value of an ordinary annuity?
Investing in an IRA
