Chapter 5 Corporate Finance

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11 Terms

1
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Present Value (PV)

PMT x ((1-(1/(1+i)^n)/ i. n= # of compounds, i= required return

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Future Value (FV)

PV x ( 1 + i)^n

3
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Ordinary Annuity

If the first payment occurs at the end of the period

4
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Annuity Due

Cash flow occurs at the beginning of the period

5
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Annuity

A contract that provides a steady stream of income in exchange for a lump sum or a series of payments

6
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FV of ordinary annuity

pmt[ (1+i)^n-1/i]

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FV of annuity due

FV of ordinary annuity x (1+r)

8
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Perpetuity

Set of cashflows that continues for ever (ex preferred stock)

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PV of a perpetuity

PMT/i

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Periodic rate (Iper)

stated annual rate/ Number of payments per yr

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Effective annual rate (EAR)

[(1+APR/# of compounds)^# of compounds] -1