| dc.description.abstract | The arithmetic of investment analysis presently in use
presumes that cash flows generated by an investment are
capable of earning successively period after period at a
uniform rate throughout the chosen time horizon. This
presumption may work out only rarely, for the rates of
reinvestment available in one period may vary from those
in another and. due to size constraints on opportunities,
the rates of reinvestments may be different even during
the same period. There is, therefore, a need to establish
methods by which cash flows can be priced when reinvestment
opportunities offer varying rates.
This paper suggests a method of pricing the cash flows
where rate of potential earning varies over time while
the size of opportunity at any one point of time can be
taken as large enough to accommodate the flows available
then. The model developed in the paper offers, incidentally,
a simple computational process to the bankers who have
to compound interest accruals on deposits at interest rates
varying with maturity. | |
