Time Value of Money Part 2

This video covers the following learning objectives:

• Define and distinguish between different types of annuities:

  • Ordinary annuity (payments at end of period)

  • Annuity due (payments at beginning of period)

• Calculate the future value of an annuity:

  • Apply the formula:
    FV=PMT×(FVF – 1)/r

• Calculate the present value of an annuity:

  • Apply the formula:
    PV=PMT×(1−PVF)/r

• Convert between annuities due and ordinary annuities:

  • Understand how to adjust calculations when cash flows occur at the beginning of the period.

• Introduce and compute perpetuities:

  • Apply the formula:
    PV=PMT/r​
    for a constant stream of cash flows with no end.

• Interpret and create loan amortization schedules:

  • Understand how each payment is divided between interest and principal.

  • Use Excel or a financial calculator to model an amortization table.

• Apply annuity formulas in real-life scenarios:

  • Solve financial planning problems like retirement savings, mortgage payments, and installment loans.