Present value and geometric series

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Last updated 6:09 AM on 5/24/26
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10 Terms

1
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What question does the present value answer?

How much a future amount of money is worth today

2
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What is the discount factor?

It is a multiplier that tells you how much a future dollar is worth today

3
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How to find the discount factor?

Divide the amount of money (now) by its future value.

4
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What is the formula for the PDV with annual interest payments?

PDV = K(1+r)^-t

<p>PDV = K(1+r)^-t</p>
5
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What is the formula for the PDV with compounding interest?

PDV = Ke^-rt

<p>PDV = Ke^-rt</p>
6
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What are geometric series usually used for calculating?

annuities or mortgage repayments

7
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What is the formula for summing finite geometric series?

Sn = a(k^n-1/k-1)

<p>Sn = a(k^n-1/k-1)</p>
8
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What needs to happen for an infinite geometric series to converge?

|k| < 1

9
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How to find the common ratio in an infinite geometric series?

Divide any term by the term that directly precedes it

10
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What is the formula for summing infinite geometric series given that it converges?

Sn = a/1-k