Present Value of the "Infrequent" Annuity

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Atif Ikram
Published at : 10 Oct 2021
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Students can use this video to better understand Section 4.4 of "Corporate Finance" [12th Edition] by Ross, Westerfield, Jaffe and Jordan.

In this video I explain what is meant by infrequent annuities, and how to calculate the present value of an infrequent annuity using an example.

The key insight that emerges from this analysis is that discount rate (or interest rate) that is being used to discount cash flows MUST BE CONSISTENT with the TIMING of those cash flows. In other words, annual cash flows must be discounted at the (effective) annual interest rate, monthly with monthly, bi-annual with bi-annual, etc. This is an important insight and will also help you better understand annuities that make (or require) monthly, weekly or quarterly payments.

Present ValueAnnuityCorporate Finance

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