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Unformatted text preview: igible or even
negative.” The marginal eﬃciency of capital, or internal rate of return of an investment,
with T expected cash ﬂows is the rate r that sets the PV of future cash ﬂows
Ct of an investment to zero, or T=0 (1+tr )t = 0.
Fixed Income VII: R. J. Hawkins Econ 136: Financial Economics 3/ 35 Keynes and Economic Instability: Assumptions
(Keynes, 1937) “We assume that the present is a much more serviceable
guide to the future than a candid examination of past
experience would show it to have been hitherto. In other
words we largely ignore the prospect of future changes about
the actual character of which we know nothing. ”
”We assume that the existing state of opinion as expressed in
prices and the character of existing output is based on a
correct summing up of future prospects, so that we accept it
as such unless and until something new and relevant comes
into the picture. ”
”Knowing that our own individual judgement is worthless, we
endeavor to fall back on the judgement of the re...
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- Fall '08