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1-23 Notes BF - • R interest rate •(see example 3 o...

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1/23/08 Business Finance Notes Discounted Cash Flow Valuation See example (Chpt 6, #1,2) Annuities and Perpetuities Defined o Annuity Finite series of equal payments that occur at regular interval 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 o Perpetuity Infinite series of equal payments Formulae o Perpetuity PV = C / R Coupon: how much you receive each period
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Unformatted text preview: • R: interest rate • (see example 3) o Annuity Formula (see Chpt 6, #4) • Finding the Number of payments of an Annuity PV=C((1-(1/((1+r)^t)))/r) • Finding the rate o Suppose you borrow $10,000 from your parents to buy a car. You agree to pay $207.58 per month for 60 months. What is the monthly interest rate? Sign Convention Matters N = 60 months PV = 10,000 PMT = -207.58 o (See Chpt 6,#5)...
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