Professional Documents
Culture Documents
,$9,523.8.5
$
1
0
C
P
V
11r
Where
C0 is cash flow at date 0,
r is the appropriate interest rate, and
T is the number of periods over which the cash is
invested.
5
.$1.05(24$
02
$
().31
1
)6
4
4$
3.02$4.3$5.92
$
,(1
2
0
$
9
,4
3
.5
.5
)5
$20,000
N
C
1
C
2
C
N
C
t
N
P
V
C
0
0
(1r)(1r)(1r)t1(1r)
F
VC
(T01.r.2Tl)n0T(1T.0)$T6$591,5300l1,n7.22$5y,e0ars(1.0)T
((1r)120$5110,1r2)T1.2$505,(1r.$2)5,0512(1r)12
F
V
About 21.15%.
r
F
V
C
1m
T
0
2
3
.V
1
2
F
$50 $50(1.6)6$70.93
Compounding Periods
Continuous Compounding
Where
C0 is cash flow at date 0,
r is the stated annual interest rate,
T is the number of years over which the cash is invested,
and
e is a transcendental number approximately equal to 2.718
Perpetuity
Growing perpetuity
Annuity
Growing annuity
C
C
C
P
V
(1r)P
2
3
(V
1
rC
)(1r)
Perpetuity
1
5
P
V
.00
Perpetuity: Example
15
15
15
2
C
(
1
g
)
C
(
1
g
)
P
V
(1r)P
2
3
rV
r
C
rg
Growing Perpetuity
C(1+g)
C (1+g)2
.P
$
1
3
0
V
5$26.0
$1.30
0
$1.30(1.05)
2
$1.30 (1.05)2
C
C
C
C
P
V
(1r)PV(1Crr)((11r)r)
(1r)
2T3T
Annuity
C
0
C
P
V
r
(1
C
r)T
Annuity Intuition
C
C
T
P
V
$
4
0
1
.7/21(.072)$12,954.
Annuity: Example
36
$400
$400
$400
$400
36
$
1
0
$
1
0
$
1
0
$
1
0
$
1
0
P
V
$
3
2
.
9
7
(.9)(.9)(.9)(.9)(.9)
.P
$
3
2
9
7
V
$
2
9
7
.
010
4
1t1t1234
$297.22
$323.97
$100
$100
$100
$100
(
1
g
)
C
(
1
g
)
P
V
(1r)r
r
1
2
T
P
C
1
g
V
rg r
Growing Annuity
C(1+g) C (1+g)2
2
C(1+g)T-1
T
$8,590(1.$$789),,5031.6(1.$78),52042(18.$78)$3,501,4(1.7.7)4
PV of Growing Annuity
0
1
$34,706.26
,P
$
2
0
1
.
0
3
.1
$
2
6
5
,1.5
7
3
Growing Annuity
4
0
$20,000 $20,000(1.03)
0
$20,000(1.03)39
40
Loan Amortization
Loan
servicing
Principal repayment
Interest payment
Different
Balloon
or Bullet payment