ECON 2560 Lecture Notes - Lecture 4: Cash Flow

• School: University of Guelph
• Department: Economics
• Course: ECON 2560
• Professor: Nikola Gradojevic

Document Summary

Isolate 3 individual cash flows then apply formula (see diagram) Find present values of all cash flows and compare to , 500. Annuities - same payment in every period for a limited amount of time. Perpetuities same payment in every period but longer, infinite number/stream of payments coming every period long. > stock theoretically if you hold a stock forever, it will keep paying (for as as a company exists) Perpetuity are abstract concepts in practice, you don"t have infinity. Example (four years until first perpetuity payment) Present value of a stream of payments going for a finite amount of time. Annuity that starts after the first year.