COMM 298 Chapter Notes - Chapter 6: Automatic Packet Reporting System, Effective Interest Rate, Cash Flow
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6. 1 future and present values of multiple cash flows i. Suppose you deposit this year with 8% interest, then another the second year. The first cash invested at time 0 on the time line. The first is calculated by x (1+r)^2. The second is calculated by x (1+r) There are 2 different ways in counting future values of multiple cash flow. If it invested at the end of each year for the next 5 years. So the first earns interest for the next 4 years and also no interest for the last year. ii. Suppose you need in one year and in two years. What is the present value of the two cash flows at 9% iii. In almost all such calculations it is implicitly assumed that the cash flow occur at the end of each period. 6. 2 valuing level cash flows: annuities and perpetuities.
