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25_2 FIN401 Financial Management
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The future value is the same concept as the way money grows in a bank account.
Using semi-annual compounding rather than annual compounding will increase the future value of an annuity.
In determining the future value of an annuity, the final payment is not compounded at all
As the compounding rate becomes lower and lower, the future value of inflows approaches the present value of the inflows
The farther into the future any given amount is received, the larger its present value.
Higher interest rates (discount rates) reduce the present value of amounts to be received in the future.
When the inflation rate is zero, the present value of $1 is identical to the future value of $1.
Discounted at 6%, $1000 received three years from now is worth less than $800 received today.
Cash flow decisions that ignore the will probably not be as accurate as those decisions that do rely on the
The future value of an annuity assumes that the payments are received at the end of the year and that the last payment does not compound.