Mathematical concepts of compounding and discounting streams of income. Demonstrate how the following formulae or factors are
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Mathematical concepts of compounding and discounting streams of income. Demonstrate how the following formulae or factors are derived:
- Amount of $1, A = (1+i)^n where i is the interest rate pa and n is the compounding/ discounting period in years
- Amount of $1 pa = (A-1)/i
- Present value of $1, V = 1/(1+i)^n
- Present value of $1 pa = (1-V)/i
What would be the formulae if the periodic incomes are receivable and compounded monthly instead of yearly?
The above formulae are derived on the basis that periodic incomes are receivable in arrears. How would you modify the formulae if the periodic incomes are receivable in advance, which is commonly the case for rental income?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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