PVIF and PVFP

Discussion in 'SA2' started by Nish_1, Mar 15, 2015.

  1. Nish_1

    Nish_1 Member

    Hello

    I think I have managed to get myself confused over PVIF and PVFP in MCEV calculations.

    I have seen comments on this forum saying that

    1.) Statutory Reserves = PVIF + Realistic Reserves.

    But I also know from work that

    2.) PVFP = PVIF + Cost of Non-Hedgeable Risk + Time Value of Options and G'tees + Frictional Costs of Required Capital.

    Therefore am I correct in thinking that Statutory Reserves - Realistic Reserves = PVFP less the three adjustments? Or should PVIF in eq 1. actually be PVFP?

    Also I want to know that apart from the liquidity premium in the RDR. What other margins do MCEV calculations typically allow and how they are allowed? I am thinking of things like specific product related risks and margin for shareholders' required return?

    Thanks
     
    Nish_1, Mar 15, 2015
    #1
  2. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    Hi

    I suspect the "statutory reserves = PVIF + realistic reserves" idea is a way of looking things that pre-dates MCEV, or at least isn't used with a market-consistent version of EV specifically in mind.

    So, I'd go for "PVIF in 1 should actually be PVFP", rather than manipulate the relationship to get an expression for "statutory reserves - realistic reserves"

    Cheers
    Lynn
     
    Lynn Birchall, Mar 26, 2015
    #2
  3. Nish_1

    Nish_1 Member

    That make sense. Thanks Lynn :)
     
    Nish_1, Mar 29, 2015
    #3

Share This Page