COMM 298 Lecture Notes - Lecture 8: Cash Flow, Interest Rate, Effective Interest Rate
Document Summary
Objectives (cid:75) be able to define and work with perpetuities. Determine the monthly payment for a given amount borrowed (pv0) Calculate the principal outstanding at any given time. Look at what happens when we refinance a mortgage. Compute how much of any given payment goes towards payment of interest and how much is repayment of principal. Present value of an annuity (cid:75) for an interest rate r", the present value at t = 0 of an annuity with n level cash flows a" that start at the end of the first period is equal to: 0 1 2 3 4 . n 1 n periods. A a a a a a cash flows. Perpetuities (cid:75) a perpetuity is an annuity that is paid in perpetuity, i. e. forever. (cid:75) timeline: Present value of a perpetuity (cid:75) the present value of an infinite stream of cash flows a" that are made at the end of each period is equal to.
