FAS L2

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• perpetuity type of cash flow stream, a stream with equal cash flow that occur at a regular internval and last forever
• Annuities a type of cash flow stream, ends after some fixed number of payments. can be car loans, mortgages etc.
• growing perpetuities a stream of cash flow that occur at regular intervals and grow at a constant rate forever
• growing annuity the stream of N growing cash flows - paid at regular intervals
• interest rates can be stated as an annual rate, may occur at different intervals, monthly etc
• the effective annual rate, EAR indicates the actual amount of interest that will be earned at the end of one year
• annual percentage rates APR indicates the amount of simple interest that will be earned in one year, that is the amount of interest earned without the effect of compounding
• computing loan payments payments made at a set interval, typically monthly. payments include the interest on the loan plus some part of the loan balance (amortization)
• nominal interest rate set up by banks and other financial institutions - used for discounting cash flows and indicates the rate at which your money will grow if invested for a certain period = r
• real interest rate the rate of growth of your purchasing power after adjusting for inflation is determined here = rr
• primary market corporation issues securities here, banks and institutions can invest here
• secondary market involve the sale of "used" securities from one investor to another, individuals can trade here

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