Hello
I'm doing some work on calculating APR and i am reading this document
http://www.creditunion.ie/files/file_20050316024652OFT%20-%20Credit%20Charges%20and%20APR.pdf
Could i ask what this means on the bottom on page 45
"As this equation shows, at the correct annual rate, the present value of the
repayment is equal to the amount advanced. This is generally referred to as
the ‘present value rule’"
To me this is saying that PV = A at the 'correct annual rate'
What does it mean 'correct annual rate'?
To me PV = A when (1+i)^t is equal to 1
Is this what it is saying? I do not understand what it means by correct annual rate
http://en.wikipedia.org/wiki/Net_present_value#Formula
Therefore, you are seeking the present value of the advance (A) here. In other words, the present value of the advance equals the present value of the annuity payment at a specific rate of return. If you do not use the correct interest rate, these values will not equal.