tax-deferred basis. 14) Annuity is a financial contract that provides annual payments over a specified period. The difference between a fixed annuity and a variable annuity is that fixed annuity returns are based on initial investment and variable annuity returns are based on performance of investment. Fixed annuity is best for a short amount of time while variable annuity does not guarantee a specific return over time‚ making it best for long periods.The main disadvantage of annuity is the high fees associated
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indifferent? Solution P = Sn (1+r)n P = 1464.10 = 1000 1.4691 P = Sn(1) PVIF r%‚ n yrs = 0.683 PVIF r%‚ n yrs Using Tables = Sn x PVIF r%‚ n yrs iii/ Compound or Future Value of An Annuity An annuity is a series of
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recognize how annuities (a set of fixed payments over a specified length of time) affect the TVM‚ managers need to consider the factors of interest rates‚ opportunity cost‚ future and present values of the money‚ and compounding. In this paper‚ I will explain how annuities affect TVM problems and investment outcomes. I will also address the impact of the following on TVM; interest rates and compounding‚ present value‚ opportunity cost‚ and annuities as well as the Rule of 72. How do annuities affect TVM
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How to Value Bonds 1. What is the present value of a 10-year‚ pure discount bond paying $1‚000 at maturity if the appropriate interest rate is: a. 5 percent? b. 10 percent? c. 15 percent? 2. Microhard has issued a bond with the following characteristics: Principal: $1‚000 Time to maturity: 20 years Coupon rate: 8 percent‚ compounded semiannually Semiannual payments Calculate the price of this bond if the stated annual
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Shapiro: Chapter 2: Capital-Budgeting Principles and Techniques QUESTIONS 1. a. What is the relationship between accounting income and economic profit? Answer: Accounting income is calculated by taking revenues and subtracting all cash and non-cash expenses (such as depreciation). Accounting income also often recognizes losses for tax purposes as well‚ even though the economic loss may have taken place at another time. Economic profit is the sum of the present values of all the cash flows
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Yet‚ the US economy is suffering through declining home values‚ a banking crisis‚ and an uncertain stock market. So‚ what would an increase in the interest rate mean for consumer financing for big-ticket items‚ the present and future values of annuities; net present values‚ weighted average costs of capital‚ and corporate earnings? Cost of Capital The cost of capital can be measured in a variety of ways. One may look at short- and long-term debt where payments will rise as interest rates rise
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York University Faculty of Liberal Arts and Professional Studies School of Administrative Studies AP/ADMS 3530 3.00 Finance Summer 2013 Course Outline - Preliminary Instructors and Class Hours Dayna Patterson dpatters@yorku.ca Sam Alagurajah salagura@yorku.ca Muz Parkhani parkhani@yorku.ca Lois King loisking@yorku.ca Section A‚ Tues. 11:30am-2:30pm SLH E Section B‚ Thur. 4 - 7pm‚ SLH E Section C‚ Wed. 7 – 10pm‚ TEL 0010 Section D‚ Internet Course Description This course introduces
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appropriate discount rate is‚ is important to correctly place value future cash flows. The Present Value of an Ordinary Annuity is the value of a stream of promised or expected future payments that have been discounted to a single equivalent value today. It is extremely useful for comparing two separate cash flows that differ in some way. Present Value of an Ordinary Annuity can also be looked at as the amount you have to invest today at a specific interest rate so that when you withdraw an equal
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Definition of Finance: Finance is a discipline that deals with how to get money optimally and how to use money optimally. Ten Fundamental Concepts of Finance I. Financial Institutions‚ Financial Instruments and Markets Financial System On a regional scale‚ the financial system is the system that enables lenders and borrowers to exchange funds. The global financial system is basically a broader regional system that encompasses all financial institutions‚ borrowers and lenders within the
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Notes: 5. I applied the formula (4.16) for PV of annuity but adapted for a frequency different than once a year‚ quarterly instead: r = 0‚055 C = 500 m = 4 T = 25 The result is approx. 27090 pounds which doesn’t appear as a possible answer. I chose the value nearest to that‚ therefore answer B. 6. I calculated the future values of the cash flows as not annuity and as annuity. I really don’t think these cash flows should be understood as annuities therefore the right way to calculate the future
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