Some investments, called perpetuities, pay a set amount of money per year, forever. That’s why they’re called perpetuities—the payments are perpetual.
- [Instructor] Some investments, called perpetuities,…pay a set amount of money per year forever.…That's why they're called perpetuities,…the payments are perpetual.…Of course, inflation eats away at the value…of the payments you receive until it's practically zero.…If the payment increases to offset inflation,…that's called a growing perpetuity.…In this movie, I will show you how to evaluate…both types of investments.…As my sample file, I will use the perpetuity Excel workbook,…and you can find it in the chapter one folder…of the exercise files collection.…
On the recurring payments worksheet of the workbook,…I have a set of payments with an assumed discount rate…of 6% per year.…So the first payment, which we assume happens today,…has a nominal value, or payment value, of 10,000,…and because there's no discounting,…a present value of $10,000.…The payment I receive one year from now…will be discounted by 6%, and you can see in cell D3…that I have the formula…to calculate the amount of the discount.…
So that is the amount of the payment,…
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- Calculating the effect of interest rates and inflation
- Finding the arithmetic and geometric means of growth rates
- Calculating the future and present value of an investment
- Calculating loan payments for a fully amortized loan
- Calculating the effect of paying extra principal with each payment
- Finding the number of periods required to meet an investment goal
- Calculating net present value and internal rate of return
- Building a cash tracking worksheet
- Visualizing cash flows using a waterfall chart