Dividends and Dividend Yields

Investors buy stocks for their potential capital gains and or their dividend payments. Companies either share their profits with their shareholders by paying dividends or retain their earnings and reinvest them in different projects in order to boost their share prices. A company's dividend policy is generally made public. For example, some growth companies and other companies choose not to pay dividends, while some of the established blue-chip companies, utility companies, and real estate...

Present Value of an Annuity

In Table 9.4, which shows the determination of the present value of an ordinary annuity, each payment receipt is discounted for the same number of periods. Table 9.5 shows the computation of the present value of an annuity due where there is one less discount period than in Table 9.4. The first payment receipt is not discounted. Therefore, the present value of an ordinary annuity tables can be converted to determine the present value of an annuity due. The present value of an annuity due factor...

Present Value of an Ordinary Annuity

As with the future value of an annuity, the timing of the payments will have an impact on the amount of the present value. For an ordinary annuity, payments deposits are made at the end of a period, and for an annuity due, payments deposits are made at the beginning of a period. As an example, the present value of an ordinary annuity of 1,000 discounted at 6 percent for five years is shown in Table 9.4. TABLE 9.4 Present value of an ordinary annuity of 1,000 discounted at 6 for 5 years...

Time Value of Money and What It Can Do for

The time value of money is one of the most important concepts in personal finance decision-making. Money does not have the same value over time due to the fact that it earns interest. Consequently, a dollar today is not the same as a dollar in the future even if it is the same physical dollar bill note that is presented. Investing that dollar today yields an amount greater than the dollar in the future. Put another way, the rate of interest is the bridge that links present and future values....

Present Value of an Annuity Ordinary and Annuity

Worksheet 9.8 illustrates the use of Microsoft Excel's spreadsheet software to determine the present value of both an ordinary annuity and an annuity due using the same examples as in the previous section. As seen from the totals in Worksheet 9.8, the present value of an annuity due is always greater than the present value of an ordinary annuity because the payments are received sooner and the first payment is not discounted. The following conclusions can be drawn for the present value of an...

Future Value of an Annuity

The difference between an ordinary annuity and an annuity due is the timing of the payments receipts. For an annuity due, the payments are made at the beginning of the period. TABLE 9.2 Future value of annuity due of 1,000 compounded at 6 for 5 years Year 0 1 2 3 4 FV end of 5 years Using the same example as the one used for the ordinary annuity, the future value of an annuity due of 1,000 invested for five years at 6 percent is 5,975.33, as calculated in Table 9.2. With the future value of an...