Perpetuity and Real-time gross settlement system: Difference between pages

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imported>Doug Williamson
(Remove excessive referencing of annuities.)
 
imported>Doug Williamson
m (Category added 9/10/13)
 
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===== Fixed perpetuities =====
(RTGS).


A fixed perpetuity is a periodic cash flow starting one period in the future, then carrying on for ever - ‘in perpetuity’.
''Funds transfer''.
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:
A gross settlement system in which processing and settlement take place in real time (continuously).
 
Present Value = A<sub>1</sub> x 1/r
 
 
where:
 
A<sub>1</sub> = 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 = A<sub>1</sub> 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 ==
== See also ==
* [[Annuity]]
* [[EONIA]]
* [[Dividend growth model]]
* [[Fedwire]]
* [[Growing perpetuity]]
* [[Gross settlement system]]
* [[Perpetuity due]]
* [[Interlinking]]
* [[Perpetuity factor]]
* [[Real-time transmission, processing or settlement]]
* [[Simple annuity]]
* [[Trans-European automated real-time gross settlement express transfer]]


[[Category:Corporate_finance]]
[[Category:Payment_and_Clearing_Systems]]
[[Category:Long_term_funding]]

Revision as of 10:00, 9 October 2013

(RTGS).

Funds transfer.

A gross settlement system in which processing and settlement take place in real time (continuously).


See also

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