Series of Cash Flows, PV, Non-annual Compounding (PV)

Question 1

An annuity is?

Answer 1

A finite set of level sequential cash flows.

Question 2

An ordinary annuity

Answer 2

has a first cash flow that occurs one period from now (indexed at t = 1).

Question 3

An annuity due

Answer 3

Has a first cash flow that occurs immediately (indexed at t = 0).

Question 4

A perpetuity

Answer 4

Is a perpetual annuity, or a set of level never-ending sequential cash flows, with the first cash flow occurring one period from now.

Question 5

What is the formula for general annuity?

Answer 5

FVn=A((1+r)^N - 1 / r)

Question 6

What is the formula that is needed to compute PV if we know the desired FV?

Answer 6

PV=FVn(1/((1+r)^N))

Question 7

What is important to do when calculating PV or FV for more than one compounding period of the year?

Answer 7

Divide the stated annual rate per number of compounding periods.

Question 8

What is the formula that is used to express PV with more than one compounding period?

Answer 8

PV=FVn(1+Rs/m)^-mN