annuitydue_v_ordannuity - Assume a discount rate of 8 0 1 2...

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Finance 254 Common Conceptual Misunderstandings Ordinary Annuity vs. Annuity Due Ordinary Annuity : 1. Present value occurs one period before first payment 2 . Future value occurs in the same period as the last payment Annuity Due : 1. Present value occurs in the same period as the first payment 2 . Future value occurs one period after the last payment Try it out : find the present values and the future values as of time 8 for the following cash flow streams. Try it using three ways: by considering the stream to contain (i) an ordinary annuity, (ii) an annuity due, and (iii) by using the cash flow worksheet on your calculator.
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Unformatted text preview: Assume a discount rate of 8%. 0 1 2 3 4 N-1 N ORDINARY ANNUITY PMT PMT PMT PMT PMT PMT P V F V 0 1 2 3 4 N-1 N ANNUITY DUE PMT PMT PMT PMT PMT PMT P V F V time cash flow 0 0 1 50 2 50 3 50 4 50 5 50 6 50 7 50 time cash flow 0 75 1 75 2 75 3 75 4 75 5 75 6 75 7 1000 time cash flow 0 0 1 0 2 0 3 25 4 25 5 25 6 25 7 1025 PV t=0 = $260.319 FV t=8 = $481.832 PV t=0 = $1005.206 FV t=8 = $1860.566 PV t=0 = $669.068 FV t=8 = $1238.398 © 2003 Brian J. Henderson & Joseph M. Marks...
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