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To the right we show the computation of the Present Value of the same revenues when interest rates are increasing. Notice that this stream of revenue has a greater
PV when lower interestes rates are applicable early and higher interest rates come later.
The longer one has to wait for money the less value it has in present terms and the higher interest rates are the lower the PV of future revenue. But high interest rates farther in the future have a smaller impact than high rates in the near future.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved