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Effects of Long Cycles in Cash Flows on Present Value

Peter Bell ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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)
Date: 2015-11-11
New Economics Papers: this item is included in nep-cmp and nep-mac
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