Effects of Long Cycles in Cash Flows on Present Value
Peter Bell ()
MPRA Paper from University Library of Munich, Germany
This paper explores how present value varies over time when the underlying cash flow has a deterministic period. I assume that cash flows are known with certainty and follow a cycle with a long or short period. When the cash flow has a short period, the present value is relatively stable over time because the present value calculation smooths out several cycles. However, when the cash flow has a long period the present value itself develops a long and large cycle. These results are driven by the mathematical definition of the present value and are relevant to the use of present value as a pricing tool in situations where the cash flows of an investment have a long cycle.
Keywords: Present Value; Investment; Simulation. (search for similar items in EconPapers)
JEL-codes: C6 C65 E4 E44 G1 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72681
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