Unformatted text preview: ( 29 ( 29 ( 29 n B r R r R r R PV P + + + + + + = = 1 $ 1 $ 1 $ 2 . Note that, other things equal, interest rates and bond prices are inversely related . Consider a perpetuity which pays $ R each year forever. Given an interest rate of r , the price of the perpetuity, B P , is its present value: r R P B $ = . The inverse relationship between interest rates and bond prices is even more evident in the above expression. Most investment projects involve streams of costs and benefits occurring at different times. The net present value ( NPV ) of a project is equal to the difference between the present value of the stream of benefits and the present value of the stream of costs, i.e., NPV = PV of Benefits – PV of Costs. If the NPV is positive, then one should undertake the project; if the NPV is negative, then one should not undertake the project....
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 Summer '05
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 Microeconomics, Inflation, Interest Rates, Time Value Of Money, Net Present Value, Mathematical finance

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