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Example: Lets say youre going to receive $100 each week for the next 6 years, with a discount rate of 596, How much is this worth to you today? Start with the formula for the PV of an Annuity: PV 01 PV- Present Value CF = amount per period i-discount rate n number of periods So far, you have this information to set up the problem: CF $100 per week n = 6 years 1-5% (annual rate) . Right now, you have cash flows in weekly terms, but a discount rate and number of periods in terms of years. Remember: this means that you have to adjust the terms n and i to match the cash flows. For months we used an adjustment factor of 12, but for weeks well be using an adjustment factor of 52, because there are 52 weeks, or periods, per year Assigned as Homework O Practice: PV of an Annuity with Non-Annual Compounding: Adjust n Think back to how we found the new n for the FV of an Annuity in monthly terms. What would be the new n for the PV of this annuity in weekly terms?
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Now we have this: PV-? CF $100 per week n 312 weeks . i-5% (annual rate) And finally, we come to the interest rate adjustment. Assigned as Homework O Practice: PV of an Annuity with Non-Annual Compounding: Adjust i Keeping in mind the adjustment factor for weeks, what is the new discount rate, i, (in absolute terms) for this annuity? Round to six decimal places NumericAnswer
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