Pricing and Equilibrium by Schneider Erich;

Author:Schneider, Erich;
Language: eng
Format: epub
Publisher: Taylor & Francis Group

If the equality signs hold good in these expressions, then the investment yields exactly the target rate of interest. The condition (1) can now be expressed in another form, more useful in discussing long-term planning, if we introduce the concept of the capital value of an investment.

6. By the capital value of an investment at a particular point of time t, and at a rate of interest i, we understand the sum of all the net receipts discounted to the point of time t, which will accrue after that point of time.

Supposing the picture of outlays and receipts from the investment has the following form:

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