Valuation of Cash Flows, Annuities, and Perpetuities

In the previous chapter, we only discussed applying the time value of money concept to lump sums (single amounts). This chapter extends the discussion of the time value of money by exploring its application to determine the present and future values of cash flow streams. The chapter begins by discussing determining the present and future values of unequal cash flows with constant and changing interest rates. This is followed by a discussion of determining the present and future values of ordinary annuities and annuities due. The chapter then discusses the construction of a loan amortisation schedule. This chapter concludes with a discussion on determining the present values of constant (non-growth) and growing perpetuities.