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Unformatted text preview: future
value and the present value of an ordinary annuity
and the present value of a perpetuity, are given in
LG3 Calculate both the future value and the present
value of a mixed stream of cash flows. A mixed
stream of cash flows is a stream of unequal periodic
cash flows that reflect no particular pattern. The
LG4 SELF-TEST PROBLEMS
LG2 LG5 ST 4–1 Time Value of Money 169 future value of a mixed stream of cash flows is the
sum of the future values of each individual cash
flow. Similarly, the present value of a mixed stream
of cash flows is the sum of the present values of the
individual cash flows.
Understand the effect that compounding interest more frequently than annually has on future
value and on the effective annual rate of interest.
Interest can be compounded at intervals ranging
from annually to daily, and even continuously. The
more often interest is compounded, the larger the
future amount that will be accumulated, and the
higher the effective, or true, annual rate (EAR). The
annual percentage rate (APR)—a nominal...
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