Matching Interest Rates to Cash Flows

annuity payment frequency determines interest rate

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Unformatted text preview: the frequency at which the interest rate is quoted, you have to convert the interest rate to get the effective interest rate for the frequency at which annuity cash flows occur. - Annuity payment frequency determines interest rate compounding frequency. Present Value of a Perpetuity The present value of an infinite stream of cash flows ‘A’ that are made at the end of each period is equal to PB= A/r PV = where r is the effective periodic interest rate. Another way of seeing this: – By depositing PV in the bank today, you...
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