Chapter 11

The Present Value of a Cash Flow

The Present Value of $1 Per Period

In Chapter 9, the Present Value of $1 to be received after T semiannual periods was shown to be equal to

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when the assumed interest rate is R per period. This corresponds to the fraction of $1 that would have to be invested and compounded at the rate R in order to accumulate the value of $1 at the end of the T periods.

Suppose we have a level cash flow consisting of 7 semiannual payments of $1 each, with payments beginning at the end of the first semiannual period. How would we compute the Present Value of this cash flow assuming a 7 percent interest rate? Each of the ...

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