BU111 Study Guide - Final Guide: Interest Rate, Lump Sum, Effective Interest Rate
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BU111 Full Course Notes
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Interest rates: sooner, you receive money, sooner you can start receiving interest. Inflation: purchasing power of money decreases over time. Risk: the(cid:396)e"s a chance you may not receive the money as time goes on. These t(cid:449)o (cid:1004)(cid:1004) (cid:271)a(cid:374)k a(cid:272)(cid:272)ou(cid:374)t"s a(cid:396)e(cid:374)"t e(cid:395)ui(cid:448)ale(cid:374)t as they o(cid:272)(cid:272)u(cid:396) at diffe(cid:396)e(cid:374)t poi(cid:374)ts i(cid:374) ti(cid:373)e. What would you be willing to pay for a payment of two years from now with market interest rates of 5%? (cid:1832)=(cid:4666)(cid:883)+(cid:4667)(cid:3015) (cid:1832) (cid:4666)(cid:883)+(cid:4667)(cid:3015) What would be your balance after 4 years if you deposited ,000 today in a bank account earning. Multiple constant payments over a period of time: the payments are of the same size, the payments occur at the same intervals (every year, every month etc. ) Ordinary annuity: payments made at the end of the period. Annuity due: payments made at the beginning of every month. Problems include solving for present value, future value, or payment amount.
