7.16. (Untitled - maya_solution - Maya, Inc.-Return on...

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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. a. iv. Simple interest means interest is earned only on the principle, whereas compound interest means interest is earned on both principle and unpaid interest. To illustrate, assume you borrowed $100 for two years at 10%
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This note was uploaded on 05/04/2008 for the course ACCT 3320 taught by Professor Frankzhang during the Summer '06 term at University of Texas at Dallas, Richardson.

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7.16. (Untitled - maya_solution - Maya, Inc.-Return on...

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