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14 Cards in this Set
- Front
- Back
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Annuity
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Series of payments of an equal amount at fixed, equal intervals for a specified number of periods.
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Annuity Due
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An annuity with payments that occur at the beginning of each period.
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Ordinary Annuity
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An annuity with payments that occur at the end of each period.
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Elements of an Annuity
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1.Series of payments
2.Equal time intervals 3.For a specified # of periods |
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Perpetuity
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A stream of equal payments (annuities) expected to continue forever.
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Effective (equivalent) Annual Rate
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Annual rate of interest actually being earned, as opposed to the quoted rate, considering the compounding interest.
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Annual Percentage Rate (APR)
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Simple interest rate; does not consider the effect of interest compounding.
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Present Value (PV)
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The value today-that is, current value-of a future cash flow or series of cash flows.
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Future Valuse (FV)
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Amount to which a cash flow will grow over a given period of time when compounded a give interest rate.
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How do annuities differ from Cashflows?
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The timing of the cash flows.
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Compounding
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The process of determining the value of a cash flow or series of cash flows at some time in the future when the compound interest is applied
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Discounting
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The exact opposite of compounding interest.
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Rule of 72
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"Divinding 72 by the annual rate of return.
Ex. 72/10=7.2" |
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What are the effects of compounding interest?
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The effects depend on the frequency. The higher the frequency the more earned.
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