The Valuation of long term securities:

Intrinsic Value:

In Finance, It is sum of all values of present value future cash flows generated by annuities.

Bonds:

A bond is security that pays a stated amount of interest to investor, Period after period, until it is finally retired by issuing company. There are some types of bonds mentioned below

·         Perpetual Bonds

·         Zero-Coupon Bonds

·         Coupon Bonds

Perpetual Bonds:

A bond which have no maturity(Issue for unlimited period of time) or in simple a perpetuity in the form of bonds .We can find intrinsic value of perpetual bond by formula mentioned below

There are two characteristic

1)      No Maturity

2)      Coupon rate

Intrinsic value = V = I/r

Where I stand for amount of interest or expected income on bond.

I = Par value of bond * Coupon rate

Example of Perpetual bond:

The British CONSOL is the example of perpetual bond.