• 6. Perpetuities

    By now, we are well familiar with the concept of present value and future value. We have also seen, however, that the computations can become quite cumbersome for investment projects with long-term cash flow streams. In this section, we take the duration of the cash flow stream to the extreme and discuss the valuation of investment projects that are expected generate a constant (or a constantly growing) cash flow and run forever. These are so-called perpetuities. As we will see in later modules, the concept of a perpetuity is extremely popular in the context of firm valuation.

5. Present Values7. Annuities