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. 

Discounted at 10%, $1000

received at the end of each year for three years is worth less than $2,700

received today. 

 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. 

When adjusting for

semi-annual compounding of an annuity, the adjustments include multiplying the

periods and annuity by 2. 

An annuity is a series of

consecutive payments of equal amount. 

If an individual's cost of

capital were 6%, he/she would prefer to receive $110 at the end of one year

rather than $100 right now. 

As the compounding rate

becomes lower and lower, the future value of inflows approaches 

The present value of a

positive future inflow can become negative as discount rates become higher and

higher. 

 Cash flow decisions

that ignore the