Stock and Bond Valuation: Annuities and Perpetuities

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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 โ€˜quick and dirtyโ€™ tool. In any of the cases, if the formulas that you learn are used widely, then these will help in understanding corporate growth economics.


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