4The Basic Theory of Interest
4.1 INTRODUCTION
The purpose of this chapter is to answer the question, “What is the best interest rate for analysis?” This seemingly simple question is, actually, quite challenging to solve. Many organizations address this problem by using subjective or heuristic techniques. However, a more rigorous method and philosophy can be leveraged to arrive at a useful rate valuable for specific analysis.
In the previous chapters, topics covered included the time value of money and techniques for choosing between competing alternatives. Making the best decisions becomes the chief concern as firms or individuals face financial options. However, the time value of money strongly influences all ...
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