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Chapter 4 time value of money 163 interest or growth

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Unformatted text preview: growth in a series of cash flows.12 EXAMPLE Ray Noble wishes to find the rate of interest or growth reflected in the stream of cash flows he received from a real estate investment over the period 1999 through 2003. The following table lists those cash flows: Year Cash flow 2003 $1,520 2002 1,440 2001 2000 1999 }4 }3 1,370 }2 1,300 }1 1,250 By using the first year (1999) as a base year, we see that interest has been earned (or growth experienced) for 4 years. 12. Because the calculations required for finding interest rates and growth rates, given the series of cash flows, are the same, this section refers to the calculations as those required to find interest or growth rates. 164 PART 2 Important Financial Concepts FOCUS ON PRACTICE In Practice Time Is on Your Side For many years, the 30-year fixedrate mortgage was the traditional choice of home buyers. In recent years, however, more homeowners are choosing fixed-rate mortgages with a 15-year term when they buy a new home or refinance their current residence. They are often pleasant...
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