Cash Flow and Fair

Market Value
Cash Flow
• is the term that refers to payments received (cash inflows) or
payments/deposits made (cash outflows).

• Cash inflows can be represented by positive numbers and

cash outflows can be represented by negative numbers.
Fair Market Value (Economic Value)
• refers to a single amount that is equivalent to the value of the
payment stream at that date. This particular date is called
focal date.

• Fair Market Value = Down Payment + Present Value

Deferred Annuity
Definitions
• Deferred Annuity – an annuity that does not begin until
a given time interval has passed.

• Period of Deferral – time between the purchase of an

annuity and the start of the payments for the deferred annuity.
Period of Deferral
Formula:

k = nt – 1
Where:
k – period of deferral
n - number of times compounded
t – time (it must be in years)
 Number of times compounded

Time

4 periods or 4 years
7 periods or 7 quarters
9 periods or 9 semi-annual
2 periods or 2-year interval
Present Value of Deferred
Annuity
Example #1:
Anna availed of a cash loan that gave her the option
to pay ₱ 10,000 monthly for 1 year. The first payment is
due after 6 months. How much is the present value of
the loan if the interest rate is 12% compounded
monthly?