Definition for : Capitalisation

Capitalisation of Income means to forego receipt of it. It then becomes capital and begins itself to produce Interest over subsequent periods. The capitalisation formula runs as follows:Vn = V0 x (1 + t)n, where Vn is the terminal capital, V0 - the initial Investment, t – Rate of return, n – Duration of the Investment.

(See Chapter 16 The time value of money and net present value of the Vernimmen)

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