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Future Value of a Single Cash Flow Formula
Present Value of a Single Cash Flow Formula
Annuities
A finite number of cash flows that are equal in value and are evenly spaced.
What are the 3 types of annuities?
Ordinary Annuity
Annuity Due
Deferred Annuity
What is an Ordinary Annuity?
An annuity where the time between now and the first cash flow is the same as the time separating each subsequent cashflow.
What is an example of an Ordinary Annuity?
The series of repayments made on a bank loan.
What is an Annuity Due?
An annuity where the first cash flow occurs immediately. However, the time between the first cash flow and the second cash flow is the same as the time separating all subsequent cash flows.
What is an example of an Annuity Due?
Rent paid on a residential property.
What is a Deferred Annuity?
An annuity where the first cash flow occurs at some time in the future, but the time between now and the first cash flow does not equal the time separating each subsequent cash flow.
What is an example of a Deferred Annuity?
A “buy now pay later” scheme often promoted by retail outlets.
Future Value of an Ordinary Annuity Formula
Future Value of other Annuities (i.e., Annuity Due and Deferred Annuity) Formula
The formula is the same as for an Ordinary Annuity.
Present Value of an Ordinary Annuity Formula
Present Value of an Annuity Due Formula
Present Value of a Deferred Annuity Formula
Perpetuity
A series of equally spaced cash flows of same dollar value that continues on forever.
What are the 3 types of perpetuities?
Ordinary Perpetuity
Perpetuity Due
Deferred Perpetuity
What is an Ordinary Perpetuity?
A perpetuity where the time between now and the first cash flow is the same as the time separating subsequent cash flows. Unlike an annuity, cash flows continue forever.
Present Value of an Ordinary Perpetuity Formula
What is a Perpetuity Due?
A perpetuity where the first cash flow occurs immediately. Unlike an annuity, cash flows continue forever.
Present Value of a Perpetuity Due Formula
What is a Deferred Perpetuity?
A perpetuity where cash flows commence some time in the future. Therefore, the time between now and the first cash flow does not equal the time separating each subsequent cash flow. Unlike an annuity, cash flows continue forever.
Present Value of a Deferred Perpetuity Formula
