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C ONTENTS PAGE
M ATERIAL
Continuous payment streams
Example
Continuously paid annuities
Example
S UMMARY
C ONTENTS PAGE M ATERIAL S UMMARY
dM(t)
ρ(t) = for all t
dt
where M(t) is the total payment between time 0 and t.
I Between times t and t + dt with dt → 0, the total payment
is therefore such that
E XAMPLE
calculate
a.) the value at time 0 of £1000 due at time t = 10,
b.) the accumulated value at time t = 20 of a payment stream
of rate ρ(t) = £1.5t paid continuously between t = 8 and
t = 10.
C ONTENTS PAGE M ATERIAL S UMMARY
E XAMPLE
a.) In this case we have a single payment and should evaluate
the present value by breaking the period into two
subintervals
1000 1000
=
A(0, 10) A(0, 5) × A(5, 10)
We have
Therefore
1000 1000
= 0.10+0.25 = £704.69
A(0, 10) e
C ONTENTS PAGE M ATERIAL S UMMARY
E XAMPLE
Note that here the piecewise nature of δ(t) does not matter
as the integrals are constrained within 8 ≤ t ≤ 10 where
δ(t) = 0.02 × (t − 5).
C ONTENTS PAGE M ATERIAL S UMMARY
1 − νn
ān =
δ
C ONTENTS PAGE M ATERIAL S UMMARY
A CCUMULATED VALUE
E XAMPLE
If the effective rate of interest is i = 4% per annum, calculate
the following quantities.
a.) 3ā10
b.) 10s̄5
Answers
a.) This is the present value of a continuous annuity paying 3
per annum for 10 years,
1 − ν 10 1 − (1.04)−10
3ā10 = 3 × =3× = 24.816
δ ln(1.04)
b.) This is the accumulated value at t = 5 of a continuous
annuity paying 10 per annum for 5 years,
(1 + i)5 − 1 (1.04)5 − 1
10s̄5 = 10 × = 10 × = 55.239
δ ln(1.04)
C ONTENTS PAGE M ATERIAL S UMMARY
S UMMARY
1 − νn
ān =
δ
and the accumulated value at time t = n as
(1 + i)n − 1
s̄n =
δ