THE GENERAL ANNUITY CASE OF TIME VALUE OF MONEY: A PEDAGOGICAL APPROACH
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Most finance and related textbooks implicitly asswne -in the case of annuitv- that the frequency of com- pounding and the number r~lpayments per year are equal. In this pape1; we provide more accurate general equations that permit the equality and the inequali(V ofthe number ofcompounding periods and the number ofpayments per yew: The correctformulation is beneficial to practitioners, regulators and software de1•elopers working with annu- ities because the correctformulas are important in applications related to capital budgeting, pension.fimds, bond valuation, and bond portfolio immunization.
Abstract
Most finance and related textbooks implicitly asswne -in the case of annuitv- that the frequency of com- pounding and the number r~lpayments per year are equal. In this pape1; we provide more accurate general equations that permit the equality and the inequali(V ofthe number ofcompounding periods and the number ofpayments per yew: The correctformulation is beneficial to practitioners, regulators and software de1•elopers working with annu- ities because the correctformulas are important in applications related to capital budgeting, pension.fimds, bond valuation, and bond portfolio immunization.