Difference between revisions of "Calculation of present value"
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| − | + | The table below lists different financial securities and how you can determine the present values of these: | |
| + | |||
| + | {| class="wikitable" | ||
| + | !Year | ||
| + | !0 | ||
| + | !1 | ||
| + | !2... | ||
| + | !...t-1 | ||
| + | !t | ||
| + | !t+1 | ||
| + | !Present Value | ||
| + | !When to use? | ||
| + | |- | ||
| + | |[[Perpetuity|Perpetuity]] | ||
| + | | | ||
| + | |1 | ||
| + | |1... | ||
| + | |1 | ||
| + | |1 | ||
| + | |1... | ||
| + | |\[\large \frac{1}{r}\] | ||
| + | |Use this for an infinite series of yearly payments | ||
| + | |- | ||
| + | |t-period [[Annuity|Annuity]] | ||
| + | | | ||
| + | |1 | ||
| + | |1... | ||
| + | |1 | ||
| + | |1 | ||
| + | | | ||
| + | |\[\large \frac{1}{r} - \frac{1}{r(1+r)^t}\] | ||
| + | |Use this when you get a fixed sum paid each year for <t> periods | ||
| + | |- | ||
| + | |t-period [[Annuity Due|Annuity Due]] | ||
| + | |1 | ||
| + | |1 | ||
| + | |1... | ||
| + | |1 | ||
| + | | | ||
| + | | | ||
| + | |\[\large (1+r)*(\frac{1}{r} - \frac{1}{r(1+r)^t})\] | ||
| + | |Same as the t-period annuity but payments start immediatly | ||
| + | |- | ||
| + | |[[Growing Perpetuity|Growing Perpetuity]] | ||
| + | | | ||
| + | |1 | ||
| + | |\[1*(1+g)\] | ||
| + | |\[1*(1+g)^t-2\] | ||
| + | |\[1*(1+g)^(t-1)\] | ||
| + | |\[1*(1+g)^t\] | ||
| + | |\[\large \frac{1}{r-g}\] | ||
| + | |Use this for perpetuities where a yearly, growing cost ''g'' is involved | ||
| + | |- | ||
| + | |[[Growing Annuity|Growing Annuity]] | ||
| + | | | ||
| + | |1 | ||
| + | |\[1*(1+g)\] | ||
| + | |\[1*(1+g)^(t-2)\] | ||
| + | |\[1*(1+g)^(t-1)\] | ||
| + | | | ||
| + | |\[\large (\frac{1}{r-g} - \frac{1}{r-g} * \frac{(1+g)^t}{(1+r)^t})\] | ||
| + | |Use this for annuities that grow at rate ''g'' | ||
| + | |- | ||
| + | |} | ||
[[Category:finance]] | [[Category:finance]] | ||
Latest revision as of 19:23, 27 August 2020
The table below lists different financial securities and how you can determine the present values of these:
| Year | 0 | 1 | 2... | ...t-1 | t | t+1 | Present Value | When to use? |
|---|---|---|---|---|---|---|---|---|
| Perpetuity | 1 | 1... | 1 | 1 | 1... | \[\large \frac{1}{r}\] | Use this for an infinite series of yearly payments | |
| t-period Annuity | 1 | 1... | 1 | 1 | \[\large \frac{1}{r} - \frac{1}{r(1+r)^t}\] | Use this when you get a fixed sum paid each year for <t> periods | ||
| t-period Annuity Due | 1 | 1 | 1... | 1 | \[\large (1+r)*(\frac{1}{r} - \frac{1}{r(1+r)^t})\] | Same as the t-period annuity but payments start immediatly | ||
| Growing Perpetuity | 1 | \[1*(1+g)\] | \[1*(1+g)^t-2\] | \[1*(1+g)^(t-1)\] | \[1*(1+g)^t\] | \[\large \frac{1}{r-g}\] | Use this for perpetuities where a yearly, growing cost g is involved | |
| Growing Annuity | 1 | \[1*(1+g)\] | \[1*(1+g)^(t-2)\] | \[1*(1+g)^(t-1)\] | \[\large (\frac{1}{r-g} - \frac{1}{r-g} * \frac{(1+g)^t}{(1+r)^t})\] | Use this for annuities that grow at rate g |