Single cash flows

1
Time Value of Money

• Single cash flows
• (n and r must be based on comparable periods)
• r interest rate, required rate of return,
  discount rate or opportunity cost

Perpetuity annuity received/paid forever

• Annuities
• Series of periodic equal-sized cash flows
• Ordinary annuity has cash flows at the end of
  each time period
• Annuity due has cash flows at the start of each
  period
• FV or PV of annuity due is always (1 r) x the
  FV or PV of the equivalent ordinary annuity

• Interest Rates
• APR, rs EAR
• º stated ºeffective
• APR ¹ EAR
• unless interest paid annually

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