In this learning unit, group activities will be given for participants to acquire further skills
in calculating PV of returns.
Perpetuity
The cash flow at constant level at fixed periodic intervals without a time limit is called
perpetuity. For example, to get constant returns of Rs.1000 per year at interest rate of
10% one has to make one time deposit of Rs.10, 000.
Annuity
Annuity is a series of constant cash flows for a fixed time span. For example, constant
repayment in case of housing loan.
Stock Exchange
Stock Exchange is a place where securities are bought and sold. Therefore, it is also
called capital market. To raise money in the market the entrepreneurs may float the
shares, debentures or bonds in large number of small units. Any person may buy or sell
such securities in the stock exchange.
Earlier, brokers formed associations to facilitate the buying and selling of securities.
Through these associations they are undertaking their own activities, or on behalf of
others on a commission basis. Gradually, these associations grew into corporate
agencies.
In India, we have 19 stock exchanges out of which the Bombay Stock Exchange is the
largest accounting unit for 80% of transactions in India.
The stock exchange consists of nominated members by Government of India and the
elected members among the member brokers. The President and the Executive Director
are responsible to see that the activities at stock exchange are carried out in accordance
with the rules and regulations issued by Government.
SEBI has been formed to ensure that stock exchanges function in an orderly manner.
Every company wishing to raise capital shall list their securities on at least one of the
stock exchanges in the country.
The primary market deals with the issue of new securities. The secondary market deals
with old/existing securities. On maturity, bonds or debentures can be redeemed in the
primary market. Or, before maturity bonds or debentures can be sold in the secondary
market. But the shares can be sold only in the secondary market.
New securities can only be purchased in the primary market, by using application form
with application money. In case of over subscription of shares, allotment will be made
on seniority or by lottery.