A step by step derivation of the annuity formula for quarterly in advance cash flows.

What is it about?

Much real estate analysis is done on the basis of annually in arrears cash flows, even where in many cases the actual cash flows (ie rent) are paid quarterly in advance. This is a convenient approximation which make analysis (even with a spreadsheet) much simpler. Although the conventional formula is found and explained in many real estate texts the same is not true of the quarterly in advance formula. Here, it is explained in full along with a discussion as to why, although more accurate than the conventional approach, it has never become more widely adopted.

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