Annuities

# Annuities - t C C C C Ordinary Annuities • The formula...

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Annuities You won \$100,000 in the lottery and will receive \$20,000 at the end of each of the next five years. You take out a loan calling for monthly payments of \$400 for 60 months. Your receive \$100,000 a quarter for the 1

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Annuities What observations would you make about these series of cash flows? The payments are the same. They occur in the same frequency. There are a finite number of payments. 2
Annuities “An Annuity is a series of equal cash flows at regular intervals across time.” 3

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Ordinary Annuities In the previous problems, the payments were unequal so each cash flow had to be calculated separately. 4 r) (1 ...... r) (1 r) (1 r) (1 PV 3 3 2 2 1 1 + + + + + + + + = t t C C C C r) (1 ...... r) (1 r) (1 r) (1 PVA 3 2 1 + + + + + + + + =

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Unformatted text preview: t C C C C Ordinary Annuities • The formula can be modified as follows: 5 + = r) (1 1-1 r C PVA t Text Book Version - PV 6 If manually calculating the payment, this version isolates the payment. The bracketed portion is the present value annuity factor. 1 1 (1 ) n r PV PMT r-+ = × Text Book Version - FV 7 (1 ) 1 n r FV PMT r + -= × Back To The Lottery Problem • You won \$100,000 in the lottery and will receive \$20,000 at the end of each of the next five years. What are your winnings worth today if you assume a 9% discount rate? 8 1 2 3 4 \$20,000 \$20,000 \$20,000 \$20,000 \$20,000 5 r = .09...
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Annuities - t C C C C Ordinary Annuities • The formula...

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