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Effects of Long Cycles in Cash Flows on Present Value

Author

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  • Bell, Peter N

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.

Suggested Citation

  • Bell, Peter N, 2015. "Effects of Long Cycles in Cash Flows on Present Value," MPRA Paper 72681, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72681
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    File URL: https://mpra.ub.uni-muenchen.de/72681/1/MPRA_paper_72681.pdf
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    More about this item

    Keywords

    Present Value; Investment; Simulation.;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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