Parliamentary Commission on Banking Standards and Perpetuity: Difference between pages

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(PCBS).
===== Fixed perpetuities =====


=== Terms of reference ===
A fixed perpetuity is a periodic cash flow starting one period in the future, then carrying on for ever - ‘in perpetuity’.
Each cash flow is an equal fixed amount.


The Parliamentary Commission on Banking Standards was established by the UK Parliament to:
The present value of a fixed perpetuity is calculated - assuming a constant periodic cost of capital (r) for all periods from now to infinity - as:


'''A.''' Consider and report on:
Present Value = A<sub>1</sub> x 1/r


# Professional standards and culture in the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting scandal.
# Lessons to be learned about:
## Corporate governance.
## Transparency.
## Conflicts of interest.
## Their implications for regulation and for UK Government policy.


'''B.''' Make recommendations for legislative and other action.
where:


A<sub>1</sub> = Time 1 cash flow


r = periodic cost of capital


=== Final report ===


The Commission's 2013 report is designed to address:
===== Growing perpetuities =====


# Making the individual responsibility of senior bankers a reality.
For a growing perpetuity, the present value formula is modified to take account of the constant periodic growth rate from one period in the future to infinity, as follows:
# Reinforcing each bank's own responsibility for its own soundness and the maintenance of its standards.
# Creating better functioning and more diverse banking markets.
# Reinforcing regulators' responsibility to exercise judgement in deploying their powers.
# Specifying the responsibilities of the UK Government.


Present Value = A<sub>1</sub> x 1 / (r - g)


The Commission's report setting out its conclusions and recommendations can be downloaded here:
where g = the periodic rate of growth of the cash flow.
[[Media:PCBS report June 2013.pdf|PCBS final report June 2013]].




==Note==
The growing perpetuity concept is applied in many contexts.
 
For example, the Dividend growth model for share valuation.


The Association of Corporate Treasurers gave both written and oral evidence to the Commission. Justin Welby, a member of the Commission, was Lord Bishop of Durham on his appointment and became The Most Rev. and the Rt Hon. the Archbishop of Canterbury before it reported. A former Treasurer of Enterprise Oil, he is a Fellow of the ACT.


== See also ==
== See also ==
* [[LIBOR]]
* [[Annuity]]
* [[Banking Standards Review]]
* [[Dividend growth model]]
* [[MCT]]
* [[Growing perpetuity]]
 
* [[Perpetuity due]]
 
* [[Perpetuity factor]]
==Other links==
* [[Simple annuity]]
*[http://www.parliament.uk/bankingstandards UK Parliament: PCBS]


[[Category:Compliance_and_audit]]
[[Category:Corporate_finance]]
[[Category:Ethics]]
[[Category:Long_term_funding]]

Revision as of 10:03, 31 May 2015

Fixed perpetuities

A fixed perpetuity is a periodic cash flow starting one period in the future, then carrying on for ever - ‘in perpetuity’. Each cash flow is an equal fixed amount.

The present value of a fixed perpetuity is calculated - assuming a constant periodic cost of capital (r) for all periods from now to infinity - as:

Present Value = A1 x 1/r


where:

A1 = Time 1 cash flow

r = periodic cost of capital


Growing perpetuities

For a growing perpetuity, the present value formula is modified to take account of the constant periodic growth rate from one period in the future to infinity, as follows:

Present Value = A1 x 1 / (r - g)

where g = the periodic rate of growth of the cash flow.


The growing perpetuity concept is applied in many contexts.

For example, the Dividend growth model for share valuation.


See also

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