4 ms·
That's not how PV is calculated. It's C/(1+r) where r is the rate between now and the time of the cashflow. When rates are zero, it just means that the cashflow
by lucozade 11y ago
That's not how PV is calculated. It's C/(1+r) where r is the rate between now and the time of the cashflow. When rates are zero, it just means that the cashflow is worth today the same as it'll be when it's paid. As rates increase, the PV of that cashflow reduces.
Also, although base rates are around zero, long term interest rates are higher. True they're not high by historic standards but you still get some discounting for cashflows beyond the short term.
- Muted 11y agoNPV = SUM_t Rt/(1+i)^t (wikipedia). This is similar to your formula. If Rt=constant for all t and t is infinite (hence in perpetuity), the formula simplifies to what I have. More info can also be found here: http://www.investopedia.com/walkthrough/corporate-finance/3/discounted-cash-flow/perpetuities.aspx http://www.investopedia.com/walkthrough/corporate-finance/3/...
- simo7 11y agoYou are missing the time in the formula, should be: (1+r)^t. When t --> inf, it becomes r.