FIN 502 Lecture Notes - Lecture 9: Real Interest Rate, Defined Contribution Plan, Goal Setting
10 Apr 2018
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Nominal interest rate (putting inflation back into a real rate) = (1 + )(1 + ) 1. Ordinary or deferred annuity- pmts at end of periods. Annuity due- pmts at the beginning of period. Constant growth annuity (cga)- stream of payments that grows at a constant rateif paid bgn multiply (1+i) Pure time premium- the price that we demand for waiting before we consume no risk, inflation, income tax. Nominal rate- discount rate for inflated or current dollars. Risk probability that we wont be paid a promised sum. Income tax important rule use after-tax discount rates for after- tax cash flows. Inflation- general rise in the prices of all goods and services . Problem adjust the purchasing power of the dollar so that we are planning for a level of consumption rather than a fixed amount of money. Total income - deductions +/- other adjustments = taxable income x federal tax rate = federal tax- federal non-refundable tax credits.
