Calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows.
Future value: FV = PV(1 + I/Y)N
Present value: PV = FV / (1 + I/Y)N
An annuity is a series of equal cash flows that occurs at evenly spaced intervals over time. Ordinary annuity cash flows occur at the end of each time period. Annuity due cash flows occur at the beginning of each time period.
Perpetuities are annuities with infinite lives (perpetual annuities):
PVperpetuity = PMT/I/Y
The present (future) value of any series of cash flows is equal to the sum of the present (future) values of the individual cash flows.
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