Difference between revisions of "Calculation of present value"

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

Revision as of 18:38, 27 August 2020

Calculation of present value