Basic Accounting Theories
Interest Rate Mathematics - Part 2
This tutorial describes the techniques of valuation of cash flows under the following situations.
‧ Cash flows occur at some point in the future which need to be evaluated today.
‧ Valuation of streams of future equal cash flows with end date, i.e. annuities
‧ Valuation of streams of future equal cash flows having no end date, i.e. perpetuities
The valuation of such cash flows is relevant to the valuation of various financial instruments and obligations, e.g. perpetual securities. This course further explores the application of these valuations methods in the investment decision making.
On completion of this tutorial, you will be able to:
-Recognize the relationship between the present value, future value, and the discount factor
-Calculate the future value of an investment for a given present value and a given interest rate
-Recognize the importance of annuities in finance and how they are valued
-Calculate the present value of a perpetuity
Module 1: Present Value & Future Value
Topic 1: Present Value
Topic 2: Future Value
Module 2: Annuities & Perpetuities
Topic 1: Annuities
Topic 2: Perpetuities