Lecture8

# Lecture8 - Eco 635.02 Prof. Zhylenko Annuities and...

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Annuity – finite series of equal payments that occur at regular intervals If the first payment occurs at the end of the period, it is called an ordinary annuity If the first payment occurs at the beginning of the period, it is called an annuity due Perpetuity – infinite series of equal payments Annuities and Perpetuities Eco 635.02 Prof. Zhylenko 1

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Perpetuity: PV = C / r Annuities: - + = + - = r r C FV r r C PV t t 1 ) 1 ( ) 1 ( 1 1 Annuities and Perpetuities – Basic Formulas Eco 635.02 Prof. Zhylenko 2
After carefully going over your budget, you have determined you can afford to pay \$632 per month toward a new car. You call up your local bank and find out that the going rate is 1 percent per month for 48 months. How much can you borrow? 54 . 999 , 23 01 . ) 01 . 1 ( 1 1 632 48 = - = PV Annuity – Example 6.5 Eco 635.02 Prof. Zhylenko 3

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You are ready to buy a house, and you have \$20,000 for a down payment and closing costs. Closing
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## This note was uploaded on 03/17/2010 for the course ECON 365 taught by Professor Svitlanazhylenko during the Spring '10 term at CUNY Hunter.

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Lecture8 - Eco 635.02 Prof. Zhylenko Annuities and...

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