Lecture 1

Question 1

What is an annuity?

Answer 1

An annuity is a stream of regular payments that lasts for a fixed number of periods.

Question 2

What is an ordinary annuity?

Answer 2

An ordinary annuity is where the holder receives the first payment in full period and the payments are identical. To calculate use the formula or table A4

Question 3

What is a delayed annuity/
?

Answer 3

A delayed annuity refers to an annuity that the annual payments begin at a date many periods in the future.
To calculate use the PV at one period before the first payment (FV) and discount it back to now (PV).

Question 4

What is a growing annuity?

Answer 4

A growing annuity is where the holder relieves the first payment in a full period and the payments are growing at constant rate.
To calculate use the PV table.

Question 5

What is a perpetuity?

Answer 5

A perpetuity is a stream of cash flows without an end.

Question 6

What is an ordinary perpetuity?

Answer 6

An ordinary perpetuity is where the holder receives the first payment in a full period.

Question 7

What is a growing perpetuity?

Answer 7

A growing perpetuity is where the holder receives the first payment in a full period and the payments grow at a constant rate.