Financial Management: Principles and Applications, 13/e

6.1 Annuities

In Chapter 5, we learned how to move single cash flows through time, calculating their future and present values. We will now extend these formulas to find the future and present values of a constant stream of cash flows. Together with what we learned in Chapter 5, the material in this chapter provides us with the tools to implement Principle 1: Money Has a Time Value. Later in the book, we will see that this principle, along with Principle 3: Cash Flows Are the Source of Value, provides the logic behind the valuation of stocks, bonds, ...