tag:blogger.com,1999:blog-8152901575140311047.post1677213431182383637..comments2017-01-16T05:01:45.569-05:00Comments on Musings on Markets: Myth 5.1: If you don't believe in forever, you cannot do a DCFAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-8152901575140311047.post-80698637088484573022016-12-06T06:36:18.170-05:002016-12-06T06:36:18.170-05:00Dear Professor,
Thank you very much for your post...Dear Professor,<br /><br />Thank you very much for your post. I have looked through your PV Calculator worksheet and found what seems to be an error in the formula for growing annuity (GA). To be more specific, the denominator inside the brackets refers to cell F13, which is an annualised discount rate; in stead, I believe, it should refer to the cell D19, which is the discount rate per period. Absent this correction, if there is more than one compounding period during the year, growing annuity results will yield too large a value. For example, leaving all the values already provided in the worksheet intact and simply changing the first parameter to GA, one would get a value of $15,975.07 with annual compounding. Changing compounding period to 2, will result in a value of $81,698.57; however good the power of compounding is, this drastic increase in PV was way too strange to me, which made me dive into the formula. If we make the above-mentioned correction, the result will be a more manageable $33,097.86.<br />I would greatly appreciate if you could confirm my suspicions. <br /><br />Kind regards,<br /><br />Tim Timhttp://www.blogger.com/profile/16231184752945989649noreply@blogger.com