Ch 6 ls
The formula for the present value of an annuity due is
(1+r) x (PV of an ordinary annuity)
the interest rate per period multiplied by the number of periods in the year
APR
another term for EAR
APY
(1+r/m)m-1
EAR
the interest rate stated as though it were compounded once per year
EAR
simplest form of a loan
a pure discount loan
The process of paying off loans by regularly reducing the principal
amortization
an annuity due is a series of payments that are made
at the beginning of each period
In a ? loan the amount of interest paid decreases each period and the principal amount paid increases each period
fixed payment
In a ? the cash flows grow for a finite period and a constant rate
growing annuity
A perpetuity is a constant stream of cash flows for an ? period of time
infinite
Traditional non-growing annuity consists of a ? stream of cash flows for a fixed period of time
level
a single cash flow
lump sum
The present value of an annuity due is equal to the present value of an ? annuity multiplied by (1+r)
ordinary
ways to amortize a loan
pay the interest each period plus some fixed amount of the principal or pay principal and interest every period in a fixed payment
C/r is the formula for the present value of a
perpetuity
original loan amount
principal
interest paid twice a year is ? compounding
semi-annual
Assume interest is compounded monthly. The ? annual rate will express this rate as though it were compounded annually.
effective
In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the ? of each period
end
Ways to calculate a balloon payment
find the present value of the payments remaining after the loan term or amortize the loan over the loan life to find the ending balance
Another common name for the effective annual rate is the annual percentage
yield