Monday, February 2, 2009

Annuities & perpetuity

Annuities are equally spaced similar payments of cash flows.

Example

If a loan is for ten years equal monthly payments, it would result in 120 equal  payments.

If these payments lasts forever it is called perpetuity.

Present value of perpetuity= cash payments/interest rate

ordinary annuity annuity due
payment at end payment immediately

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