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There is a liability which will owe x dollars per year in n years with interest rate r (annual compounding). Is the present value of this liability given by:

sum(x/(1+r)^i)

or

sum(x(1+r)^i)

In other words, are there differences in calculating present value of a bond and of a liability or loan?

Thanks!

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  • MathJax tags don't work in this forum (the support is forum-by-forum).
    – D Stanley
    Commented Apr 6, 2018 at 18:20

1 Answer 1

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To the "in other words" portion. No. My debt to the bank (a mortgage) looks like a bond to the bank in terms of valuation. Your question can be solved by first calculating the present value of a payment stream, and then just reduce to account for delay till that stream starts, i.e. since there's a delay till the PV is reached, the time until the payment stream starts. A financial calculator makes these calculations pretty simple.

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