Jan 20 - January 20, 2011 - 1st hour Difference between...

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January 20, 2011 - 1 st hour Difference between Annuities and Annuities Due: The present value of a regular annuity is found one period before the first cash flow. The future value of a regular annuity is found on the same period of the last cash flow. The present value of an annuity due is found on the same period of the first cash flow. The future value of an annuity due is found one period after the last cash flow. PV AD =PV A (1+i) FV AD =FV A (1+i) Annuity – Same payment in each period Regular Annuity – Classic Interpretation: Payments occur at the end of the period. (Car loan, Mortgage – payments occur at the end of every month) PV: One period before first payment FV: As of last payment Annuity Due – Classic Interpretation: Payments occur at the beginning of the period. (Insurance – you pay your premium at the beginning of each period) PV: As of first payment FV: One period after last payment Simple interest doesn’t take into account compounding effect of interest-on-interest. (1+i): The value of 1 maintains original amount. Invest early to capitalize on power of
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This note was uploaded on 02/07/2011 for the course FIN 3403 taught by Professor Tapley during the Spring '06 term at University of Florida.

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Jan 20 - January 20, 2011 - 1st hour Difference between...

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