Financial Independence

Present value of perpetuity

A security that pays a never-ending cash stream.

present_value = cash_flow / (real_return - growth)

if growth > 0:
    perpetuity grows over time
elif growth == 0:
    perpetuity remains the same over time
else:
    perpetuity decreases over time

Present value of annuity

Assume that superannuation/funds are used up over a period of time.

Can also be used to determine borrowing capacity.

present_value = cash_flow * ((1 - (1 + rate)^-period) / rate)