Answer: aEASY Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods. a. True b. False (5-2) Compounding 8. F J Answer: bEASY Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods. a. True b. False (5-2) Compounding 9. F J Answer: aEASY Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts.
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appropriate discount rate is‚ is important to correctly place value future cash flows. The Present Value of an Ordinary Annuity is the value of a stream of promised or expected future payments that have been discounted to a single equivalent value today. It is extremely useful for comparing two separate cash flows that differ in some way. Present Value of an Ordinary Annuity can also be looked at as the amount you have to invest today at a specific interest rate so that when you withdraw an equal
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The PV of $100 received in years 1 to 12 is: PV = $100 [Annuity factor‚ 12 time periods‚ 9%] PV = $100 [7.161] = $716.10 The PV of $100 paid in years 1 to 2 is: PV = $100 [Annuity factor‚ 2 time periods‚ 9%] PV = $100 [1.759] = $175.90 Therefore‚ the present value of $100 per year received in each of years 3 through 12 is: ($716.10 - $175.90) = $540.20. (Alternatively‚ we can think of this as a 10‑year annuity starting in year 3.) 3. a. so that r1 = 0.136 = 13.6% b.
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Notes: 5. I applied the formula (4.16) for PV of annuity but adapted for a frequency different than once a year‚ quarterly instead: r = 0‚055 C = 500 m = 4 T = 25 The result is approx. 27090 pounds which doesn’t appear as a possible answer. I chose the value nearest to that‚ therefore answer B. 6. I calculated the future values of the cash flows as not annuity and as annuity. I really don’t think these cash flows should be understood as annuities therefore the right way to calculate the future
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but we have also seen it with variable annuities and just about every other financial product being offered to the public. By way of observation‚ this commentary typically lags reality... not keeping pace with the investing public who are relying on this type of commentary to make good decisions with their money‚ much like the regulatory environment that governs our industry in delivering their critique. Example: I am not a huge fan of the variable annuity for instance‚ because I think that there
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Annuities # 2 Time Value of Money (TVM) Understanding how the time value of money works can be most easily explained by taking your initial investment let us say $10 by the end of year five it could be worth $100. This means you have earned $90 in the last five years. Next year‚ you invest $10 and at the end of year five it is worth $80 because interest has not accumulated on the time that was lost between year 1 and year 2. My example of this is that my fiancé put $3000 in each of his
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Valuing Cash Flows – The Time Value of Money – Future Value – Present Value – Value Additivity • Project Evaluation – Net Present Value – The Net Present Value Rule • Shortcuts to Special Cash Flows – Perpetuities - Growing Perpetuities – Annuities - Growing Annuities • Compound Interest Rates – Compound Interest versus Simple Interest – Discrete Compounding – Continuous Compounding – Effective Annual Yield • Adjusting for Inflation Principles of Finance Present Value - Page 3 Valuing Cash Flows
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Ning Huang Hui Zhen Eldwin Quek Kiok Liang James Chua Ming Loon Quantitative Skill 2011 CONTENT PAGE Page 1: Title Page Page 2: Contents Page 3: Executive Summary Page 4: Table 1 [Financial Plan for 20 Years invest in stock‚ ordinary annuity & annuity due] & Company Background Page 5: Table 2 [Comparison of investment options in term of risk and return] & Chart 1 [Comparison of capital and return for investment] Page 6: Recommendations for Part 1 Page 7: Table 3 [Renting compared to buying
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an ordinary annuity = R (PVF -) a) Present value of an ordinary annuity = $30‚000 (PVF -) = $30‚000 (4.96764) = $149‚029.20 b) Present value of an ordinary annuity = $30‚000 (PVF -) = $30‚000 (8.31256) = $249‚376.80 c) Present value of an ordinary annuity = $30‚000
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interest n= number of periods Future Value of an Annuity The future value of an annuity is the sum of all the payments (receipts) plus the accumulated compound interest on them. In computing the future value of an annuity‚ it is necessary to know (1) the interest rate‚ (2) the number of compounding periods‚ and (3) the amount of periodic payments or receipts. Formula: FVoa= PMT [((1+i)n-1)/i) Where: FVoa = Future Value of an Ordinary Annuity PMT = Amount of each payment i = Interest Rate
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