More Time Value of Money

Quick Formulas for Perpetuities and Annuities

This chapter is a natural extension of the previous chapter. We remain in our world of constant interest rates, perfect foresight, and perfect markets. We cover two important but different questions that remain:

1. What should influence your investment decisions?

In particular, if you have a need to have cash early on, would this make you value short-term projects more? And are fast-growing companies more valuable than slow-growing companies?

2. Are there any shortcut formulas that can speed up your PV computations?

The answer to the first question will be that nothing other than NPV should matter for project valuation, so neither your need to have cash nor the growth pattern of the firm should make any difference.

The answer to the second question will be that there are indeed valuation formulas for projects that have peculiar cash flow patterns—perpetuities and annuities. Their values are easy to compute when interest rates are constant. This often makes them useful "quick-and-dirty" tools for approximations. They are not only in wide use, but also are necessary to compute cash flows for common bonds (like mortgages) and to help you understand the economics of corporate growth.

file=perpetuities.tex 36 â–  Chapter 3 MORE TIME VALUE OF MONEY

Sell Your Annuity

Sell Your Annuity

Do you have annuity you dont want? Discover When is it Time to Sell Your Annuity? What can I do? Where can I get the money I need? I have an annuity, but I dont know that I can sell it. Is there a good time to sell my annuity? I already have a home improvement loan, but it was used before the roof needed replacing.

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