FIN 301 CHAPTER 6 KEY CONCEPTS & FORMULAS

FIN 301 CHAPTER 6 KEY CONCEPTS & FORMULAS - –...

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FIN 301 CHAPTER 6 - KEY CONCEPTS AND FORMULAS 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. Perpetuity: PV = PMT / r Annuities: - + = + - = r r PMT FV r r PMT PV t t 1 ) 1 ( ) 1 ( 1 1
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Future Value: Multiple Uneven Cash Flows (Individually future value each cash flow as a lump sum.) Present Value: Multiple Cash Flows (Individually present value each cash flow as a lump sum.) Effective Annual Rate (EAR) The interest rate expressed as if it were compounded once per year.
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Unformatted text preview: – Used to compare two alternative investments with different compounding periods APR = the quoted rate m = number of compounds per year • Annual Percentage Rate (APR) “Nominal” – The annual rate quoted by law – APR = periodic rate X number of periods per year – Periodic rate = APR / periods per year 1 m m APR 1 EAR- + = + = 1-EAR) (1 m APR m 1 TIMELINE 200*(1.07) = Total interest = $628.49-600=28.49 * (1.07)^2 = 100*(1.07)^2 = $114.49 1 2 3 7%-$100.00-$200.00 4 5-$300.00 $719.56 $300.00 $214.00 $628.49...
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FIN 301 CHAPTER 6 KEY CONCEPTS & FORMULAS - –...

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