DEVELOPMENT EVONOMICS

USE OF VALUATION TABLES

1) Rs.1 is invested. It accumulates at an i compound interest for n years. After n years’ amount
is given by following equation
A = (𝟏 + 𝒊)𝒏
2) Following equation gives you the present value of Rs.1
𝟏
PV = (𝟏+𝒊)𝒏
3) If Rs.1 is invested at the end of each year at i compound interest for n years, amount shall be,
(𝟏+𝒊)𝒏 −𝟏
A= 𝒊
4) Annual Sinking Fund
This is the amount you have to invest at the end of each year, if you want to get Rs.1 at the
end of n years at i compound interest
𝒊
S = (𝟏+𝒊)𝒏 −𝟏
5) Year’s Purchase (YP) or present value of Rs.1 per annum

This is the present value of right to receive Rs.1 at the at the end of each year for n years at an
i compound interest rate
(𝟏+𝒊)𝒏 −𝟏
YP for n years =
𝒊(𝟏+𝒊)𝒏

6) Year’s Purchase in perpetuity

This is the value of right to receive Rs.1 at the end of each year in perpetuity at I compound
interest
𝟏
YP in perpetuity =
𝒊

7) Year’s Purchase of a Revision to a perpetuity

Example: What is the capital value of the right to receive Rs.1 per annum in perpetuity
commencing in 7-year time? (assuming 7% compound interest)

YP in perpetuity @ 7% = 1/.07 = 14.586

PV of Rs.1 for 7 years at 7% = 1/ (1+.07) ^7 = .6227

= 14.586 X 0.6227 = 8.896

8) Year Purchase and sinking fund

Capital value of the right to receive Rs.1 at the end of each year for n years at I compound
interest, but allowing for a sinking fund “s” to recoup Rs.1 after n years
𝟏 𝒊
where Sf = (𝟏+𝒊)𝒏−𝟏
𝒊+𝑺𝒇

9) Valuation of freehold interest

Capital Value = Net income per annum X Years Purchase

 Net income can be derived by deducting outgoing from rent received per annum
 YP differs according to the yield expect by investor