Maya, Inc.—Return on Investment
a. i.
Most people would say that $100 today is more valuable than $100
in the future. The reason is that if you had the $100 today, you could
consume it. The value of consumption today is generally considered higher
than consumption in the future—especially if you expect inflation to erode
the “real” value of the $100 in the future. Alternatively, you could invest
it and end up with more than $100 in the future.
a. ii.
A lump sum payment is a single payment (as opposed to a series of
payments).
a. iii.
An annuity is a series of payments. The payments are equal in
amount and equally spaced in time. In the case of an ordinary annuity, the
first payment is made one “period” from today. For example, bonds pay
interest at the end of every six month period. In the case of an annuity due,
the first payment is made today. For example, you probably pay rent to your
landlord at the beginning of the month.
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 Summer '06
 FrankZhang
 Time Value Of Money, Future Value

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