The marginal eciency of capital or internal rate of

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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 ￿ C Ct of an investment to zero, or T=0 (1+tr )t = 0. t 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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