Stock and Bond Valuation: Annuities and Perpetuities

Important shortcut formulas

Present value formula reputes up to be the main one for judging the value of investments and that too of all the various types of bonds and stocks inclusive. These are however, very rarely put future investment. Dividends may be the income of all stocks. Commonest mortgage bonds are of 30 years usually. That makes 360 of the mortgages. The formula of NPV will be possible are tedious in the work which has 360 terms overall.

To the good luck of everyone, there are many formulas which act like shortcuts and will speed up the PV summation if the projects are set with a definite group of cash flow and the capital cost is a constant term. Among the 2 most prominent formulas, there are projects that are named perpetuities and annuities. Perpetuities are those payments that last forever and all the annuities are the ones whose payments last for only a limited number of years. As none of the firm lasts for eternity, the perpetuity formula mostly is called ‘quick and dirty’ tool. In any of the cases, if the formulas that you learn are used widely, then these will help in understanding corporate growth economics.

Links of Previous Main Topic:-

• Introduction of corporate finance
• The time value of money and net present value

Links of Next Financial Accounting Topics:-

• Stock and bond valuation annuities and perpetuities
• A first encounter with capital budgeting rules
• Working with time varying rates of return
• Uncertainty default and risk
• Risk and return risk aversion in a perfect market
• Investor choice risk and reward
• The capital asset pricing model
• Market imperfections
• Perfect and efficient markets and classical and behavioral finance
• Capital budgeting applications and pitfalls
• From financial statements to economic cash flows
• Valuation comparables financial ratios
• Corporate claims
• Capital structure and capital budgeting in a perfect market
• The weighted cost of capital and adjusted present value in an imperfect market with taxes
• What matters
• Equity payouts
• For value financial structure and corporate strategy analysis
• Capital structure dynamics firm scale
• Capital structure patterns in the united states
• Investment banking and mergers and acquisitions
• Corporate governance
• International finance
• Options and risk management