Week 4 - Valuation II: Annuities and perpetuities

Question 1

Define Annuity?

Answer 1

any financial contract that calls for equally spaced and level cash flows over a finite number of periods.

Question 2

What are ORDDINARY ANNUITIES (AKA Annuity in Arrears)?

Answer 2

structured so that cash payments are paid or received at the end of each period.

Question 3

Fill in the following one word gap: Payments for annuities are due at the ____ of each period?

Answer 3

start

Question 4

Fill in the following one word gap: If nothing is said about the cash flows, always assume it is an _____ annuity

Answer 4

ordinary

Question 5

Define Growth Annuity?

Answer 5

where the cash flow increases each period at a constant growth rate.

Question 6

Define Perpetuities?

Answer 6

an annuity where the cash flow continues for an indefinite period.

Question 7

Define Growth Perpetuity?

Answer 7

where the cash flow increases each period at a constant rate for infinity.

Question 8

Define Dividend?

Answer 8

profit share

Question 9

Define Yield/Return?

Answer 9

expresses the money earned by the asset, as a percentage of the price paid for the asset.