Perpetuities and Annuities - Corporate Finance - Ivo Welch
Perpetuities and Annuities - Corporate Finance - Ivo Welch Perpetuities and Annuities - Corporate Finance - Ivo Welch
Assume the interest rate is r = 20%. You need to rent a building. The landlord gives you two choices, a two-year lease with an extra payment in the first year, or a three-year lease: Which is better? Time 0 1 2 Project A (or Rent A) $20 $12 Project B (or Rent B) $15 $15 $15 30/1
What is the PV (or cost) of project A? 31/1
- Page 1 and 2: Perpetuities and Annuities (Welch,
- Page 3 and 4: General Questions ◮ Are there any
- Page 5 and 6: Simple Perpetuities A perpetuity is
- Page 7 and 8: ...in another language ◮ If you k
- Page 9 and 10: What is the value of a promise to r
- Page 11 and 12: What is the perpetuity formula if t
- Page 13 and 14: Growing Perpetuities A growing perp
- Page 15 and 16: How can a growing infinite sum be l
- Page 17 and 18: What is the value of a firm that ju
- Page 19 and 20: In 10 years, a firm will have annua
- Page 21 and 22: What should be the share price of a
- Page 23 and 24: The Gordon Dividend Growth Model
- Page 25 and 26: Annuities An annuity is a financial
- Page 27 and 28: Annuity Example: Mortgage Loan Here
- Page 29: Omitted: Principal and Interest Dec
- Page 33 and 34: What if you need to use the buildin
- Page 35 and 36: Why is this EAC stuff in the annuit
- Page 37 and 38: What are the payments to a 5% semi-
- Page 39 and 40: Is the coupon rate of a bond equal
- Page 41 and 42: An insurance company offers a retir
- Page 43 and 44: The prevailing interest rate is 10%
- Page 45 and 46: Assume that our firm has stopped gr
- Page 47 and 48: An example drawn from an actual aut
- Page 49 and 50: If you took out a loan from the ban
- Page 51 and 52: Should you use perpetuities? How lo
- Page 53: Omitted, but in the book ◮ Proof
Assume the interest rate is r = 20%. You need to rent a<br />
building. The l<strong>and</strong>lord gives you two choices, a two-year<br />
lease with an extra payment in the first year, or a<br />
three-year lease:<br />
Which is better?<br />
Time 0 1 2<br />
Project A (or Rent A) $20 $12<br />
Project B (or Rent B) $15 $15 $15<br />
30/1
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